October 17, 2007 at 1:00 am by Tom Lydon
Closed-end funds (CEFs), which are relatives of exchange traded funds (ETFs), have been gaining in popularity lately. That’s because their discounts have widened this year. Around 650 closed-end funds exist today with a market capitalization of about $300 billion, reports Andrew Lecky for Tribune Media Services. As with open-end mutual funds, CEFs have actively managed portfolios. However, unlike open-end mutual funds, CEFs offer the capability to be traded on a minute-by-minute basis.
What’s most important to those looking for a bargain is that the price of closed-end shares is determined by the overall market and can be more or less than the net asset value (NAV) of the underlying investment portfolio. The difference between the two determines whether you buy the CEF at a discount or premium. The goal is to buy a CEF at a discount to its NAV. Investors also must consider the fund’s overall performance and if the CEF will continue to pay its dividend. A few CEFs to consider include:
- Calamos Strategic Total Return Fund (CSQ) - Some of its largest holdings include AT&T (T), Johnson and Johnson (JNJ) and Merck (MRK). It had a 9% market return and a 18% NAV return over the past 12 months.
- Eaton Vance Tax Advantaged Global Dividend Income Fund (ETG) - Some of its largest holdings include AT&T (T), Veolia Environnement and the United Kingdom’s Scottish and Southern Energy. It had a 22% market return and a 29% NAV return over the past 12 months.
- Van Kampen Municipal Trust (VKQ) - It had a 5% market return and a 0.18% NAV return over the past 12 months.
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October 17th, 2007 at 4:48 pm
I find it interesting that any article or conversation about CEFs always fails to mention one of the stars in taht world: Morgan Stanley China A Shares Fund Inc. (CAF) which is only up 113.55% ytd. Any reason for the omission?
October 18th, 2007 at 9:30 am
Hi Howard,
Thanks for the comments and question. With more than 600 CEFs to choose from, the purpose of this post was to provide a general education overview along with a few options. CAF certainly has had nice returns though! We did not omit it for any particular reason. Another place to get information on CEFs is through ETF Connect: http://www.etfconnect.com/
Hope this helps!
November 21st, 2007 at 10:21 pm
as caf is currently at a discount of 35% to asset value I would appreciate your opinion.