What’s to like about Closed End Funds (CEFs)?

“Before the advent of modern ETFs in the early 1990’s, there existed exchange-traded close-end funds (CEFs).  CEFs still exist today but are fewer in number and hold less total assets under management than do ETFs.

Unlike ETFs, Closed End Funds generally have no preset process or mechanism for creation and redemption of shares.  Instead, when an investor wants to buy or sell he must do so in the open market.  As a result CEFs often trade at a discount to net asset value (NAV).  A substantial discount can represent a favorable opportunity to invest.

CEFs have two additional favorable attributes: (1)  fund inflows and outflows are limited and predictable and (2) the fund manager may be able leverage fund assets at very low cost to the benefit of shareholders.

Download this Excel File to see a recent portfolio proposal consisting of five closed end funds.  This proposal contains a mix of bond funds and a risk protected equity fund.  Each of the funds has a nice dividend yield and trades at a substantial discount to NAV.

About the Author:

Parker Evans, CFA, CFP, CMT is President of Successful Portfolios LLC, an SEC Registered Investment Advisor Firm based in Clearwater, FL. Parker helps individuals, families, and organizations plan and manage custom investment portfolios at leading brokerages including Charles Schwab, TD Ameritrade, and Interactive Brokers.