Volatility Makes Closed End Funds Cheaper

A closed-end fund is organized as a publicly traded investment company by the Securities and Exchange Commission (SEC). Like a mutual fund, a closed-end fund is a pooled investment fund with a manager overseeing the portfolio; it raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.

One of the unique features of a closed-end fund is how it is priced. The net asset value (NAV) of the fund is calculated regularly. However, the price that it trades for on the exchange is determined entirely by supply and demand. This can lead to a closed-end fund trading at a premium of a discount to its NAV. Funds can trade at premiums and discounts for a number of reasons. Closed-end funds focused on a popular sector at the time may trade at a premium. These funds may also trade at a premium if the fund is managed by a historically successful stock picker. Conversely, a lack of investor demand or a poor risk and return profile of the fund can lead to it trading at a discount to its NAV.

One of the greatest things about closed-end funds (CEFs) is that they often cost less than they’re really worth. Even after the recent volatility, these funds are up around 15% from a year ago. The best news is that there are still a lot of discounted CEFs floating around.

A closed-end fund produces a finite number of shares at the start. After the initial public offering, shares are traded on the stock market with prices rising and falling with investors’ views about the assets in the fund and the fund manager’s skill. CEFs are sometimes described as ancestors to exchange-traded funds, but CEFs have a fixed number of shares while ETFs can raise or lower the figure as demand changes. That means the CEF share price is set by supply and demand, adding a layer of risk and opportunity. ”The price of the fund can vary far from the fund’s net asset value,” Vogel says. “Since the fund is closed, no new shares are created when an investor purchases them, allowing the price the ability to float to a premium or discount to the fund’s NAV.”

Volatility Makes Closed End Funds Cheaper
Video: The Profit-Making Magic of Candlestick Patterns at Major Moving Averages

--

--

--

ProfitableInvestingTips.com is an informational website for men and women who want to discover trading & investing products and strategies and how to use them.

Love podcasts or audiobooks? Learn on the go with our new app.

Commonly Asked Questions About Chapter 13 Bankruptcy

Best loan company for bad credit?

What kind of account should be recorded for the loan?

Invitation June 11th Online Virtual Family Office and Institutional Investor Luncheon

What are the Best Investing Podcasts to Listen to in 2022?

Hard Rules For Easier Home Buying

Why I invested all of my money into the NAKD stock

Preview of stock performance of NAKD

6 Ways to Boost your profit with NFTs

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Profitable Investing Tips

Profitable Investing Tips

ProfitableInvestingTips.com is an informational website for men and women who want to discover trading & investing products and strategies and how to use them.

More from Medium

Ways to Avoid Alternative Minimum Tax on Incentive Stock Options

Book review: Beating the Street by Peter Lynch

Five Top Reasons for Volatility in the Markets… And What You Should Do About It