Closed-end funds maintain a “fixed number” of share after their initial IPO. Consequently, closed-end fund managers are consistently fully invested
for the long-term, as they not need to maintain cash reserves to meet
The Power of Discount:
Closed-end may trade at a premium or discount versus their underlying net
asset value (NAV). Price fluctuations are due to market demand and other factors. Purchasing at a discount vs. NAV may enable investors to capitalize
on price appreciation if the discount narrows over time, or by selling the
closed-end fund at a higher price.
Closed-end funds trade on an exchange and can be purchased during any trading day at their current market price. This cannot be done with traditional mutual funds, as investors’ orders are filled ONLY at the close of business, based on the fund’s closing NAV.
Potential for Income and Growth:
Closed-end funds are a cash flow-generating vehicle. While bond closed-end funds are favored for delivering income, equity ones provide both income
or dividend streams, which can be reinvested in additional shares of the
Market Size and Capacity Issues:
There are more than 540 closed-end fund issues in the market totaling approximately $222 billion in assets. The average closed-end fund trades 88,000 shares daily or $1.14 million in daily volume. Due to the lack of deep liquid markets, most large institutional pension funds cannot allocate enough assets to this strategy to make it worthwhile. We estimate that we could efficiently manage $500 million to $1 billion, or less than 0.5% of the market.