Exchange traded funds (ETFs) offer a balance between open and closed-end funds. Alan R. Elliot of Investor’s Business Daily adds that ETFs include a legal mechanism through which the ETF market makers can create or withdraw shares in order to regulate the fund’s share supply. This keeps the funds price more closely linked to the net asset value of the stocks in its portfolio, in contrast to a closed-end fund.
The closed-end funds do not trade shares at prices close to their NAV- it’s all about liquidity and demand. The open-end funds trade close to their NAV but can only be purchased or sold at the end of the day, unlike the ETF that can trade at any time before close. This control and diversification has helped add to the assets in ETFs, nearly $4 billion.
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