The New America High Income Fund (HYB) is a fixed income closed-end fund that has recently seen a significant one-day price jump of +7% on August 9, 2024. This sudden increase was a result of a proposed reorganization into the T. Rowe Price High Yield Fund by Saba Capital, an activist hedge fund known for closing unjustified arbitrage opportunities in closed-end funds (CEFs).
Saba’s successful corporate action to merge HYB into an open-ended mutual fund has effectively closed the historical -12% discount to NAV that HYB has been trading at. This move signifies a potential shift in the market where HYB will be priced at the value of its assets, eliminating the discount.
Retail investors can benefit from Saba’s strategies by investing in their exchange-traded fund Saba Closed-End Funds ETF (CEFS) or by following their 13-F filings to identify new investment opportunities. It is important to note that while the merger of HYB into the T. Rowe Price High Yield Fund has been approved by the Board of Directors, it still requires shareholder approval, which is expected to be favorable.
The approval of the merger will likely result in the un-leveraging of HYB, as the entire leverage position will be eliminated. This reduction in leverage is expected to be straightforward since the fund does not have term funding but rolls repos. Shareholders are encouraged to vote in favor of the merger to avoid a potential drop in the CEF’s price.
Overall, the actions taken by Saba Capital have been instrumental in closing the discount to NAV for HYB and creating value for shareholders. By leveraging their expertise and resources, Saba has been able to drive positive changes in the management of CEFs, benefiting all shareholders involved.
