OREANDA-NEWS. Fitch-rated closed end funds (CEFs) have maintained high levels of asset coverage and passed their respective rating levels throughout the recent jump in market volatility, says Fitch Ratings. The fear of an economic slowdown in China, the expectation of a rate hike from the Federal Reserve and the falling price of oil are affecting equity and bond markets and the net asset values (NAVs) of CEFs.

The market's volatility has decreased asset coverage levels associated with the leverage issued by CEFs. Between Aug. 17, 2015 and Aug. 26, 2015, CEFs had an average NAV decline of 2.7%, while asset coverage decreased by 1.9%. The declines were partly a result of the substantial declines in major market indices, including a 7.7% decline in the S&P 500 over the same eight-day period. Despite their NAV declines, Fitch-rated CEFs continue to maintain asset coverage of at least 200% for total leverage (debt plus preferred shares) and 300% of debt, as well as consistent with assigned ratings.

In particular, the falling price of oil has had a negative effect on NAVs of MLP funds. Between Aug. 17, 2015 and Aug. 26, 2015, the average NAV of an MLP fund decreased by 11.1%. During this time period, average asset coverage ratios fell by 7.7%, while all rated MLP funds remained well above Fitch's thresholds to retain their current rating level. The maintenance of coverage by MLPs was driven by a substantial asset-coverage cushion built in by managers ahead of the recent volatility, and by modest deleveraging by some funds.

In a sign that asset volatility has affected investors' views of fund performance, between Aug.17, 2015 and Aug. 26, 2015, the average CEF discount widened 0.7% as share prices tumbled faster than NAVs. This brought the average CEF discount to 9.9%.