Closed Fund Open Mind

Donna M. St.Amant

Closed-end funds (CEFs) can play an important role in a diversified investment portfolio. They offer benefits similar to those of an open-end mutual fund, but also sport unique advantages.  

Unlike a traditional open-end mutual fund, CEFs have a fixed number of shares available to trade. Their price is not tied to the value of the underlying portfolio. The only way the number of shares can change is by increasing shares through a rights offering or decreasing shares in a tender offer or repurchase program.  

CEFs offer many of the same benefits common to open-end mutual funds such as diversification, income distributions, and professional management. Both types of funds may distribute interest, dividends, and capital gains. Both structures provide the opportunity to invest in more specialized sectors with risk distributed across a professionally managed portfolio of securities.  

Sign Up for E-News

There are also many distinguishing features of a CEF that provide advantages not provided by a mutual fund.

Buying at a Discount:  Often CEFs trade at a discount or premium to the NAV because the CEF’s share price is driven by supply and demand. For funds trading at a discount, this offers the potential to boost investment returns.  

Discount to NAV narrows.  If the discount to NAV closes or narrows, an investor can realize enhanced performance.  The performance measure includes the income earned on the fund, the appreciation or decline in the NAV and then also any change in the gap between market price and the NAV.

Provides a higher yield / return:  Because you are buying more than a dollar’s worth of assets for every dollar invested, the yield/return on actual dollars invested will be higher.  

Efficient Portfolio Management:  Because a CEF is made up of a stable pool of capital, a manager isn’t concerned about the continuous cash outflows and inflows that can disrupt a traditional mutual fund manager’s strategy. He will not have to sell securities to meet investor requests to redeem shares, nor will he be forced to purchase securities when investment demand increases and new cash comes in to the fund. The manager can focus clearly on the fund’s objectives and invest with a long term strategy.  

Advantage in Specialized or Less Liquid Markets: CEFs have an advantage when investing in specialized or less liquid asset classes or single country markets. Due to the stable nature of the fund’s structure, they can maintain a long term outlook and withstand price volatility in less liquid markets.

Leverage potential: Often a CEF will use leverage to enhance performance. CEFs can borrow at short term rates by issuing senior securities in the form of debt or preferred stock. This approach offers the potential to increase yield and offer higher levels of income than a traditional open-end fund.  

Exchange traded: A CEF trades like a stock on the exchange and can be bought and sold at any time during the day.  An investor can also place limit orders to have complete control over the price paid for a fund.  

Types of CEFs

The largest category, in terms of assets under management, is tax-exempt bond funds. These funds invest in tax-free bonds issued by state and local governments and agencies. Many of them use leverage to increase the fund’s returns.  

Domestic taxable bond funds are also available and dedicated to a variety of bond issuers such as treasuries, corporate bonds, and agencies. Domestic equity funds include a broad mix of stocks and can be focused on a particular sector or a strategy like growth or income. Global and International CEFs can be focused on a single country or a less liquid sector such as emerging markets. A CEF is advantageous in these cases because the fund has the ability to hold in volatile markets or periods of market decline.

When looking at CEF investment performance, focus on the total return. Capture the rise or decline in the market price taking into account any change in the discount or premium as well as the income from fund distributions. Always prefer CEFs trading at a discount, and avoid or sell those trading at a premium.

Note:  Donna St.Amant, MBA, is a Portfolio Manager at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit.

CNBC has named Point View to its list of the top 100 fee-only wealth managers in America! See

Point View Wealth Management, Inc. works with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals. We are independent and fee only. How can we help you? Contact David Dietze (, Claire Toth (, or Donna St.Amant ( or call (908) 598-1717 to learn how.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of or anyone who works for is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News


A Week at the Library of The Chathams Monday, June 25 – Sunday, July 1, 2018

Please note that the library will be closed on Sundays now through Labor Day weekend


By Galina Natenzon

All three of the library’s summer reading programs open this week!  The theme of this year’s summer reading is Libraries Rock!  The children’s program kicks off with a magic show by Matt Cadabra on Monday.  Over ...

A Week at the Library of The Chathams Monday, June 18 – Sunday, June 24, 2018

Please note that the library will be closed on Sundays now through Labor Day weekend


By Galina Natenzon

This week we are wrapping up our first session of ESL classes.  Stay tuned, we are planning a fall session to start in September.  New students are welcome to enroll!  This is the last week of calm and quiet at the library before our summer reading ...

Angie's Owners Want to Thank Their Chatham Customers

June 14, 2018

To the Editor:

We want to thank our customers and the entire community for their support and devotion to our business. Our last day of business will be July 31.

rWe will miss all the friends that we have developed over the past 26 years. Wishing everyone much success and happiness in the future.


Louiza and Jimmy Poulimenos

P.S. "Until we meet ...


AtlantiCast Episode 17

On this week’s AtlantiCast, it’s National Men’s Health Month, so check out important health tips for you or the men in your life, learn about groundbreaking research into breast cancer treatment that could mean an end to chemotherapy for some patients, meet a local sports hero who’s living his baseball dreams thanks to Goryeb Children’s Hospital and much ...

Chatham Students Drury, McMahon, Moran, Pallitto Graduate from Scranton University

June 24, 2018

SCRANTON, PA - Students earning undergraduate degrees from Scranton University include the following Chatham residents.

Adam C. Drury earned a Bachelor of Arts degree in strategic communication; Kara L. McMahon earned a Bachelor of Science degree in exercise science; Meghan A. Moran earned a Bachelor of Science degree in human resources studies, and Christina M. Pallitto earned a Bachelor ...

Summertime Air Quality Issues

Summer weather can be harmful to your health due to air pollutants like ozone, mold, and moisture that are more prevalent both inside and outside than they are during cooler months. 

Sunny days, warm temperatures, and light winds don’t allow pollutants to be cleared from outside air. Instead, they encourage the formation of ozone, a leading air pollutant.  Ozone is ...