In this episode of Strategic Investor Radio, host Charley Wright interviews Chris Lakumb of RiverNorth Capital. The Chicago-based firm, founded in 2002, specializes in closed-end fund (“CEF”) strategies bundled in mutual funds, closed-end funds, and private funds.
Beginning in 2004, RiverNorth set its focus on research, development, and analysis of CEFs. This is a comparatively inefficient market, which presents opportunity for disciplined investment managers. Mr. Lakumb says the firm doesn’t try to predict the future, but instead has a reactive strategy. In his view, the uncertainty of Federal Reserve policy, negative interest rates, and other factors make predicting the future more luck-based than skill-based.
RiverNorth launched its flagship fund, the RiverNorth Core Opportunity Fund (MUTF:RNCIX), in 2006. It pursues an investment objective of long-term capital appreciation and current income through a top-down, balanced equity-to-fixed income portfolio that increases CEF exposure when discounts to net-asset value (“NAV”) widen, and reduces exposure when those discounts narrow. The fund returned +4.29% in the first four months of 2016, according to Morningstar.
One reason the CEF market is “inefficient” is that most CEF investors are primarily concerned with distributions, and thus they pay less attention to the fund’s price relative to its NAV. RiverNorth’s strategies are focused on total return, which includes distributions and share-price gains. RiverNorth’s active trading of CEFs makes them fairly unique within the industry.
Today there are 25 professionals at RiverNorth, and the firm manages a total of $3.3 billion across a series of opportunistic investment strategies. Jeffrey Gundlach, the Barron’s-anointed “Bond King,” is a sub-advisor to a RiverNorth fund, and the firm’s relationship with Mr. Gundlach dates back further: RiverNorth was a major investor in the fund Gundlach managed for TCW, prior to his departure to found DoubleLine.
But ultimately, Lakumb is negative on investment picking. He and RiverNorth prefer systematic investment approaches that are reactive and repeatable, regardless of market conditions. “We’re not a macro shop,” he said. “We don’t think our crystal ball is better than everyone else’s.”