With a bottom-up, value-oriented approach, the 1607 Capital investment team buys closed-end funds and other discounted assets based on a proprietary system developed and refined over more than 25 years. The unique attributes of closed-end funds, combined with the relatively unsophisticated investor base for these funds, allows the team to take advantage of what is often an extremely inefficient market. The firm’s investment professionals have over 100 years of combined experience in the closed-end-fund industry.
The firm’s investment team looks to achieve excess returns in three key areas:
- Discounts – Since the ability to buy these funds at discounts to their net asset values is what makes 1607’s approach unique, one would assume that this is where the firm would expect to achieve its greatest advantage, and indeed it is. The team identifies funds that are trading at discounts wider than their own historical averages, expecting those discounts to revert to that mean over time. This typically happens as a result of market forces (supply and demand), but in the absence of those, corporate actions may also help to achieve this reversion.
- Manager Performance – Similar to a more traditional fund of funds, the investment team works diligently to identify managers with the best opportunity to outperform going forward.
- Asset Allocation – While the ultimate allocation of assets among regions, countries or sectors is often the result of the bottom-up research done to identify quality managers and attractive discounts, the investment team confirms these weightings with an analysis of the macro environment as well. Investment decisions are confirmed through this process and, as a result, portfolios will often have over and under weights with respect to their benchmarks.