The Securities and Exchange Commission (SEC) recently granted exemptive relief to two closed-end funds (CEFs), allowing them to make monthly payouts of capital gains.
This exemption lifts rules that were put into place by the Investment Company Act of 1940, which prohibited closed-end funds from making long-term capital gains distributions more than once a year.
Kevin Burke for Ignites reports that the two funds granted this exemption are the ING Clarion Real Estate Income Fund (IIA) and the ING Clarion Global Real Estate Income Fund (IGR). These two funds now have the ability to pay out checks to investors no more than 12 times per year.
With more funds waiting for approval, the exemption to make managed distributions of capital gains is expected to make managers of closed-end funds more flexible and potentially attract more investors. In doing so, the goal of allowing managed capital gains payouts is to provide a smooth income stream while reducing the discount.
However, there is some danger. Some funds could increase distributions too much, which would result in the deterioration of the net asset value (NAV). In extreme cases, it could force a fund to fold.
The immediate impact of allowing closed-end funds to make managed monthly payouts is unclear given the markets have left most funds with losses rather than gains. However, this exemption is likely to benefit these funds once the markets recover.
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.