RIV: Modest Returns But 12% Yield Will Lead To Shrinking NAV

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The RiverNorth Opportunities Fund, Inc. (NYSE:RIV) tactically invests successful CEFs to seizure inefficiencies betwixt the NAV and marketplace terms of concern funds. The RIV money has generated humble humanities returns with 5Yr mean yearly full returns of 4.5%. However, it is currently acceptable to wage investors a 12.2% of NAV organisation yield, which appears unsustainable.

Fund Overview

The RiverNorth Opportunities Fund, Inc. is simply a closed-end money ("CEF") that opportunistically invests successful different closed-end funds, peculiar intent acquisition companies ("SPAC"), concern improvement companies ("BDC") and speech traded funds ("ETFs"). The RIV money aims to capitalize connected inefficiencies successful the CEF marketplace portion offering diversified vulnerability and precocious existent income.

The RIV money has $268 cardinal successful nett assets and whitethorn employment leverage to heighten returns. As of January 31, 2023, the RIV money had $98 cardinal of leverage against $361 cardinal successful nett assets for 27% effectual leverage.

Strategy

The manager, RiverNorth Capital Management, believes that the close-end money operation offers unsocial opportunities whereby investors tin acquisition a diversified money and perchance make further returns from the alteration successful the investment's marketplace terms and NAV.

Portfolio Holdings

Figure 1 shows RIV's plus people allocation arsenic of January 31, 2023. The RIV money is chiefly invested successful fixed income funds (38%), SPACs (21%), and concern institution bonds (12%).

Figure 1 - RIV plus people allocation (rivernorth.com)

Figure 2 looks done RIV's holdings to the plus classes of the underlying funds. RIV's largest value is successful SPACs (22%), U.S. treasuries (17%), concern institution bonds (12%), BDCs (11%), and precocious output bonds (6%).

Figure 2 - RIV look done plus people allocation (rivernorth.com)

Returns

Figure 3 shows RIV's humanities returns arsenic of January 31, 2023. The RIV money has generated humble semipermanent returns with 3 and 5Yr mean yearly full returns of 4.0% and 4.5%, respectively.

Figure 3 - RIV humanities returns (morningstar.com)

2022 was an disconnected twelvemonth for RIV, arsenic the money mislaid 13.7%. Otherwise, the RIV money has generated decent precocious azygous digit to debased treble digit returns successful 5 of the past 7 years (Figure 4).

Figure 4 - RIV yearly returns (morningstar.com)

Distribution & Yield

I judge the main attraction the RIV money for investors is its organisation yield. The RIV money pays a precocious monthly organisation that is currently set astatine $0.1278 / period for Q1/2023 oregon 12.9% output connected marketplace price. On NAV, RIV is yielding 12.2%.

Investors should enactment that with the money lone earning a 5Yr mean yearly instrumentality of 4.5%, RIV's treble digit organisation output whitethorn beryllium unsustainable. In fact, if we look astatine RIV's fiscal summary, we tin spot the money has heavy utilized instrumentality of superior ("ROC") to money its organisation (Figure 5).

Figure 5 - RIV has been backing organisation with ROC (RIV 2022 yearly report)

ROC is not needfully bad; if a money trades astatine a steep discount, returning superior to investors whitethorn unlock shareholder value. However, implicit the agelong run, a money that cannot gain its organisation indispensable edifice to liquidating its NAV to money distributions. This creates a antagonistic spiral wherever distributions are progressively funded from ROC arsenic assets are liquidated. A classical motion of an unsustainable organisation output is simply a shrinking NAV (Figure 6).

Figure 6 - RIV has a classical shrinking NAV (morningstar.com)

We tin besides spot that RIV has reduced its monthly organisation from $0.21 successful 2018 to $0.17 successful 2021, and present $0.1278 successful 2023 (Figure 7).

Figure 7 - RIV has chopped its monthly organisation to $0.1278 (rivernorth.com)

Fees

The RIV money charged investors full disbursal of 1.91% of nett plus successful fiscal 2022. However, investors should enactment that with a new capitalist advisory agreement going into effect successful October 2022, the disbursal ratio whitethorn change. RIV is going from a adaptable disbursal ratio (where fees specified arsenic administrative fees are charged to the money directly) to a unitary interest exemplary whereby the advisor charges a fixed % interest to the money and pays the adaptable fees connected the fund's behalf (Figure 8). Fees from leverage are inactive charged straight to the fund.

Figure 8 - Proposed alteration successful advisory interest (RIV proxy statement)

Supposedly, the quality to investors should beryllium minimal. But the existent interest complaint remains to beryllium seen.

Furthermore, RIV's interest does not see the fees charged by the underlying funds. Paying fees connected apical of fees is ne'er a bully idea.

Conclusion

The RiverNorth Opportunities Fund, Inc. tactically invests successful CEFs to seizure inefficiencies betwixt the NAV and marketplace terms of concern funds. The RIV money has generated humble humanities returns. However, my main interest with the money is its 12.2% of NAV organisation yield. Relative to the fund's returns, the organisation output appears acold excessively precocious and unsustainable.

I spent 5 years arsenic a co-founder and hedge money CIO / manager. Before that, I was a hedge money analyst/portfolio manager astatine a starring Canadian alternate plus manager. I constitute articles arsenic portion of my ain owed diligence connected the stocks that I find interesting, for 1 crushed oregon another.Follow maine connected twitter for my thoughts connected macro trends.