Questions-Answers about trading

Why do closed end funds trade at a discount


Why do closed end funds sell at a discount to NAV?

A discount to the NAV may reflect a market perception that the fund’s future earnings or distribution potential are at risk. Since CEFs are built based on a theme, a discount could signal that a particular industry/sector/asset class may be out of favor with investors.

Why do closed end funds trade at premiums?

Because closed-end funds trade on a public exchange, the price of the units will be determined by the market. … For example, if you are looking at a long term municipal bond fund and investors are expecting interest rates to decline to a level that is lower than the current level, you may see the fund trade at a premium.

What is closed end fund discount?

Closed-end funds often trade at a discount to their net asset values (NAV). … Closed-end funds issue a fixed number of shares. Unlike other fund structures which can issue and redeem shares, this means that supply will not necessarily meet demand.

What are the advantages of closed end funds?

Closed-end funds offer several distinct advantages that help investors meet their investment objectives.

  • Portfolio Management. …
  • Stable Asset Base. …
  • Market Pricing. …
  • Trading Liquidity and Flexibility. …
  • Distributions. …
  • Leverage. …
  • Lower Expense Ratios. …
  • Automatic Dividend Reinvestment Plans.

Why are closed end funds bad?

The bad side of a closed-end fund is when the fund’s managers use their closed-end structures to collect high fees from their captive investors. Many closed-end funds are all about collecting high fees from investors: initial offering fees and egregious management fees.

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Are closed end funds good for retirement?

Look to Closed-End Funds for Retirement Income

The good news on the dividend front is that you can still find plenty of high, safe payouts in my favorite corner of the high-yield market: closed-end funds (CEFs). CEFs are a great pick for retirement income today, for three reasons.

What are the disadvantages of closed end funds?

“Because closed-end funds can trade at discounts or premiums to net asset value, they are more volatile than the equivalent open-end fund,” says advisor and money manager Leland Faust, author of “A Capitalist’s Lament: How Wall Street is Fleecing You and Ruining America.” Many CEFs use leverage to boost results.

What are the risks of closed end funds?

What are the risks associated with Closed-end Funds?

  • Market risk. Just like open-ended funds, closed-end funds are subject to market movements and volatility. …
  • Interest rate risk. Changes in interest rate levels can directly impact income generated by a CEF. …
  • Other risks.

Are closed end funds safe?

Generally speaking, investing in closed-end funds offers much higher income potential but can result in significant price volatility, lower total returns, less predictable dividend growth, and the potential for more surprises.

What are examples of closed end funds?

Closed-end funds are investment vehicles with shares listed on multiple global stock exchanges, like the New York Stock Exchange and the London Stock Exchange, that essentially trade like stocks.

What are the best closed end funds?

Top-producing closed-end funds for investors:

  • The India Fund (IFN)
  • Voya Emerging Markets High Dividend Equity Fund (IHD)
  • Aberdeen Total Dynamic Dividend Fund (AOD)
  • BlackRock Taxable Municipal Bond Trust (BBN)
  • Hercules Capital (HTGC)
  • PIMCO High Income Fund (PHK)
  • BlackRock Core Bond Trust (BHK)
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How are closed end funds taxed?

Like mutual funds, closed-end funds pay out their earnings to shareholders in two ways: … The portion of a capital gains distribution reported by the fund as “short-term” generally is taxed to shareholders as ordinary income (in taxable accounts).

Which is better open ended or closed ended?

Key Takeaways

Open-end funds may represent a safer choice than closed-end funds, but the closed-end products might produce a better return, combining both dividend payments and capital appreciation. A closed-end fund functions much more like an exchange traded fund (ETF) than a mutual fund.

Are closed end funds tax efficient?

Instead, like open-end mutual funds and ETFs, CEFs pass the tax consequences of their investments onto their shareholders. To maintain tax-free status, a CEF must pass on to shareholders, generally speaking, roughly: 90% or more of net investment income from dividends and interest payments.

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