How to Shop for Closed-end Funds (CEFs) | ETF Trends

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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.