Now that actively managed exchange traded funds (ETFs) are a reality, closed-end funds (CEFs) could begin seeing evolution in greater numbers.
Since the approval of the actively managed ETF, the CEFs that are trading below their net asset value (NAV) are leading managers to explore the possibility of opening them up into ETFs, reports Jesse Emspak for Investor’s Business Daily.
CEFs only issue a limited number of shares and new shares aren’t issued as investor demand grows, unlike ETFs. Prices aren’t determined by the NAV, but instead by investor demand. The fund represents an actively managed portfolio of securities, and they typically concentrate on a specific industry, sector or region.
Claymore/Raymond James SB-1 Equity Fund (RYJ) is one CEF exploring a conversion. The board of directors has approved it, and it has to be run by the shareholders.
RYJ actually had a provision for making it an open-ended fund: if it trades at a discount of 10% or more over 18 months, or at 10% or more for 75 days in a row, it will convert. It never met the criteria, though.
ETFs have more than twice the assets as CEFs do, so perhaps this is something we may see more of in the future.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.