Saba Capital Income & ops Fund II Stock Price, News & Analysis

Saba Capital Income & Opportunities Fund II (NYSE: SABA) is a publicly traded, registered closed-end management investment company. The fund’s stated investment objective is to provide investors with high current income, with a secondary goal of capital appreciation. Its common shares trade on the New York Stock Exchange under the ticker symbol SABA and it is managed by Saba Capital Management, L.P.

According to the fund’s disclosures, Saba Capital Income & Opportunities Fund II seeks to achieve its objectives by investing globally in debt and equity securities of public and private companies. The fund’s investment universe includes, among other things, investments in closed-end funds, special purpose acquisition companies (SPACs), reinsurance-related securities, and public and private debt instruments. The fund also may utilize derivatives, including but not limited to total return swaps, credit default swaps, options and futures, in seeking to enhance returns and/or to reduce portfolio risk.

Investment objective and strategy

The fund states that its primary objective is to provide high current income to shareholders. Capital appreciation is identified as a secondary goal. To pursue these objectives, the fund invests in a mix of debt and equity instruments across global markets. Its approach encompasses securities of public and private issuers, listed and unlisted companies, as well as various forms of equity derivatives.

The fund’s materials note that it may invest in high yield securities, which are described as speculative in nature and subject to additional risk factors such as increased possibility of default, illiquidity, and sensitivity to changes in interest rates. The fund may also invest in foreign borrowers, which involves special risks, including potentially less rigorous accounting requirements, differing legal systems, and potential political, social and economic adversity.

Use of closed-end funds, SPACs, reinsurance and derivatives

Saba Capital Income & Opportunities Fund II indicates that its investment strategy includes positions in other closed-end funds and SPACs. These types of investments come with additional risks and considerations specific to their structures. The fund also references investments in reinsurance-related securities. The performance of these securities, and of the reinsurance industry itself, is tied to the occurrence of triggering events such as weather events, natural disasters, non-natural large catastrophes and other specified events causing physical and/or economic loss.

The fund states that it may utilize derivatives such as total return swaps, credit default swaps, options and futures. These instruments are used in seeking to enhance returns and/or reduce portfolio risk. The use of derivatives introduces its own set of risks, which the fund highlights among its risk factors.

Managed distribution plan and dividends

The fund has described a managed distribution plan under which it makes monthly distributions to shareholders at a fixed amount per share. The plan is characterized as a managed distribution plan intended to provide shareholders with a constant, but not guaranteed, fixed minimum rate of distribution each month. The fund also notes that the plan is intended to narrow the discount between the market price and the net asset value (NAV) of the fund’s common shares, while emphasizing that there is no assurance the plan will achieve this outcome.

Under this plan, if sufficient investment income is not available on a monthly basis, the fund will distribute long-term capital gains and/or return of capital in order to maintain its managed distribution rate. As a result, long-term capital gains and/or return of capital may be a material source of any distribution. The fund repeatedly cautions that no conclusions should be drawn about its investment performance from the amount of distributions or from the terms of the plan, and that no level of distribution can be guaranteed. The board of trustees may amend or terminate the plan at any time without prior notice to shareholders, and such changes could have an adverse effect on the market price of the fund’s common shares.

The fund also issues notices pursuant to Section 19(a) of the Investment Company Act of 1940, providing estimates of the sources of its distributions, such as net investment income, net realized capital gains and return of capital. These notices emphasize that the amounts and sources of distributions reported are estimates, not tax reporting information, and that the final determination of the source and tax characteristics of all distributions is made after year-end and reported on Form 1099-DIV.

Risk considerations

Saba Capital Income & Opportunities Fund II highlights a range of risks associated with its strategy. It notes that the value of its investments in equity securities of public and private, listed and unlisted companies and equity derivatives generally varies with the performance of the issuer and movements in equity markets. The fund may suffer losses if it invests in equity instruments of issuers whose performance diverges from the investment manager’s expectations or if equity markets move in a single direction and the fund has not hedged against such a move.

The fund explains that reinsurance-related securities are tied to the occurrence of specified triggering events, and that losses associated with such events could result in losses to the fund’s investment. A series of major triggering events affecting a large portion of the reinsurance-related securities held by the fund could result in substantial losses.

The fund’s disclosures also discuss interest rate and credit risks. It notes that changes in short-term market interest rates may directly affect the yield on the fund’s common shares. If such rates fall, the fund’s yield may also fall. If interest rate spreads on bonds and loans owned by the fund decline in general, the yield on those instruments will likely fall and their value may decrease. When short-term market interest rates rise, the impact on the fund’s portfolio may be delayed due to the lag between changes in such rates and the resetting of floating rates on bonds and loans.

The fund points to the limited secondary market for certain bonds and loans, which may limit its ability to sell such securities in a timely fashion or at a favorable price. It also notes that changes in demand for bonds and loans can affect both the rate of interest payable on new instruments and the price of those purchased in the secondary market. Additional risks mentioned include the use of derivatives, potential lack of diversification in the fund’s portfolio, and the possibility that the portfolio may be concentrated in a small group of industries or sectors from time to time.

Foreign investment and currency considerations

With respect to foreign investments, the fund notes that investment in foreign borrowers involves special risks, including differing legal systems, potentially less rigorous accounting requirements, and potential political, social and economic adversity. The fund may engage in currency exchange transactions to seek to hedge, as closely as practicable, the economic impact arising from foreign currency fluctuations.

Adviser and historical note

The fund’s disclosures state that effective on January 1, 2024, Saba Capital Management, L.P. replaced Franklin Templeton Advisers, Inc. as the investment adviser to Saba Capital Income & Opportunities Fund II, which was formerly known as the Templeton Global Income Fund. Performance of the fund prior to that date is noted as not attributable to Saba Capital Management, L.P.

Across its communications, Saba Capital Income & Opportunities Fund II reiterates that past performance is no assurance of future results, that investment return and principal value of an investment in the fund will fluctuate, and that shares, when sold, may be worth more or less than their original cost. The fund encourages investors to consider its investment objective, risks and expenses carefully and to review its filings with the Securities and Exchange Commission for more detailed discussions of risk factors.