A Guide to Closed-End Funds (CEFs)
Learn how to invest into Closed-End Funds
Closed-End Funds: The Basics- Definition A closed-end fund (CEF) is a publicly traded investment company. It collects money from investors through an initial public offering (IPO) and ...
- Different Types of Closed-End Funds
- CEFs offer a wide array of investment choices for the investor. Within equity CEFs (the focus of this service), there are: Diversified Domestic Funds. Though ...
- Net Asset Value of Closed-End Funds
- Simply put, the net asset value (NAV) is the current worth of a share of the CEF. It is computed by deducting the total assets of the CEF (the current market value of the securities held ...
- Closed-End Funds: A Deeper Look at Discount/Premium: Some Definitions
- The discount or premium at which a CEF trades is perhaps the single most important factor influencing the decision to invest in the CEF. Let us review the definition of discount/premium, and ...
- Closed-End Funds: Long-Term Factors Influencing Discounts/Premiums
- Many funds consistently trade at, close to, or around, a particular level of discount or premium. There may be many factors responsible for determining whether a CEF will trade at a premium or ...
- Example: Asia Pacific Fund
- As the chart below shows, the Asia Pacific Fund has traded consistently at premiums often as high as 30+%. Bad news and selloffs pushed APB to discounts briefly, and a nimble trader could have ...
- Closed-End Funds: Short-Term Factors Affecting Discount/Premium
- Though some or all of the above factors may hold for a particular CEF, it will not always trade at a fixed discount or premium, but, more often, will fluctuate around the level. The amount and ...
- Premium/Discount of the Austria Fund
- The daily chart of the Austria fund below shows the four characteristic stages of a rights offering: 1) the shrinking of the discount as the market price climbs to reflect the benefits ...
- Premium/Discount of the Scudder New Asia Fund
- Some CEFs may make large distributions at year-end if they have large realized gains during the year. For example, the Scudder New Asia fund made a distribution of $4.22 to shareholders of ...
- Closed-End Funds: Will Discounts and Premiums Persist?
- Investors of CEFs that trade at large discounts naturally would like the fund management to do something to reduce the discounts. Through the years, funds have tried several alternatives with ...
- Investing in Closed-End Funds: The Basics: Introduction
- If you've invested in stocks before, then investing in closed-end funds (CEFs) will be a breeze. CEFs trade on the exchanges exactly like stocks. We recommend you at least quickly skim through ...
- Investing in Closed-End Funds: Selecting a Broker
- To buy and sell shares of a CEF, you need to place orders through an intermediary, called a broker, who will convey your instructions to the stock exchange specialists, and keep you ...
- Investing in Closed-End Funds: Setting up an Account
- Once you have settled on a broker, you will need to contact the broker for forms to set up your account. There are two main types of accounts: cash accounts and margin accounts. In a cash ...
- Investing in Closed-End Funds: Leverage
- A primary use of a margin account is to borrow money with the securities in the account as collateral, usually to invest. Buying on margin, when properly understood, may provide aggressive ...
- Jakarta Growth Fund
- As the chart below shows, the Jakarta Growth Fund has consistently traded at a premium most of 1993 and 1994. On the rare occasions when the CEF traded close to its NAV or at a discount, the CEF ...
- Investing in Closed-End Funds: Short Selling
- A margin account may also be used for shorting CEFs: that is, hoping to profit from an anticipated decline in the market price of the CEF. The mechanics of shorting are as follows: you borrow ...
- Investing in Closed-End Funds: Placing an Order
- Once you have established your brokerage account and have deposited sufficient funds in the account, you are ready to buy and sell CEFs. As we mentioned earlier, one of the key advantages of ...
- Investing in Closed-End Funds: Tracking Your CEFs
- Well, you took the plunge and bought your first few shares of a CEF that was trading at a particularly attractive discount. What next? It depends on your investment style and nature. Some of us ...
- Investing in CEFs: The Rewards
- The Basics Investing in closed-end funds (CEFs), while undoubtedly exciting, can also be very rewarding. Apart ...
- Investing in CEFs: Leverage of Discount
- CEFs, when purchased at a discount, offer a form of free leverage, where no margin interest is paid. The wider the discount, the larger is the leverage. This leverage can dramatically improve ...
- Investing in CEFs: Magnified Yields
- CEFs, when purchased at a discount, offer the benefit of higher yields. The reason is again simple: dividends are garnered on the NAV, but the investor puts in money at the lower market price if ...
- Investing in CEFs: Shrinking Discount
- Apart from profitting from a direct rise in the market through the NAV of the fund, a CEF investor may also profit from a shrinking discount. Sometimes, the gains from the shrinking discount ...
- Trading Closed-End Funds: The Basics
- Introduction The primary objective in trading closed-end funds (CEFs) is to make a profit of 25-40% in a period of ...
- Trading Closed-End Funds: Selecting Candidate CEFs
- Buy at large relative discounts. The crux of the trade is in buying when the CEF is deeply discounted in comparison to its normal discount. Such situations are usually brief, ...
- Trading Closed-End Funds: Buying CEFs
- There are two very important facts that investors tend to forget or wilfully ignore (hey, after all, I-am-smarter-than-the-other-bozos-who are-investing; these-rules-are-not-for-me syndrome):...
- Trading Closed-End Funds: Selling
- Perhaps the hardest part of investing is deciding when to sell. This is especially true in trading when selling must be done during periods of high optimism, especially if you have built large ...
- Trading Closed-End Funds: Traits of a Good Trader
- Now that we have set some basic guidelines, here are some traits that separate good traders from bad. Discipline: A very important factor in trading successfully ...
- Trading Closed-End Funds: Some Final Notes
- Be wary of overtrading. Sure signs of overtrading is mounting confirmation slips on your desk, your deep-discount broker recognizing your voice and calling you by your first ...
- Closed-End Funds and Mutual Funds
- CEFs and Mutual Funds: Similarities Most investors are familiar with mutual funds. CEFs are like mutual funds in many respects. Both are investment ...
- Major Differences between CEFs and Mutual Funds
- CEFs differ from mutual funds in three major respects: the buying and selling of the funds' shares, the price at ...
- Stability of the pool of investment money.
- As discussed earlier, the pool of money available for investment remains stable for CEFs, but constantly fluctuates for mutual funds depending on the issuance and redemption of shares. ...
- Control over price of the funds' shares
- With a mutual fund, the price at which the individual investor can buy or sell shares is set at the NAV. With a CEF, the individual investor has opportunities to time his purchase and sale of ...
- Premium/Discount of the Mexico Equity & Income Fund
- For much of 1994, the Mexico Equity Income Fund traded at most premiums, and towards the end was trading at a modest discount. However, the devaluation in the peso at the end of 1994 and ...
- Potential Disadvantages of Investing in CEFs
- We would be remiss if we did not mention some of the potential problems of investing in CEFs. The same differences discussed ...
- Potential Disadvantages of Investing in CEFs: Shrinking Premium
- The leverage of the discount/premium can be a double-edged sword. If the CEF is bought at a wide discount, the market moves up, and the discount shrinks or changes to a premium, the investor ...
- CEF Liquidity
- The large majority of CEFs trade on the NYSE and, for most, liquidity is not a problem for the small investor. However, a few CEFs are fairly illiquid---trading, at an average, only a few ...
- Volatility of CEFs
- Many of the CEFs invest in exotic markets---South African gold mines (ASA), warrants (EWF), or emerging markets (IGF, CRF). Swings of 10% daily are not uncommon; sometimes, markets may move as ...
- CEF Commissions
- One important reason why investors tend to shy away from CEFs are brokers and commissions. Many investors have never traded on the exchanges: instead, they may have bought mutual fund shares ...
- Sources of Reference Information
- Reference Books Many of the usual investment books include a chapter or at least a mention of CEFs when discussing mutual funds. Some books that focus ...
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