The Mystery of Closed-End Fundshttp://www.fool.com/investing/mutual-funds/2007/04/12/the-mystery-of-closed-end-funds.aspx Amanda B. Kish, CFA
April 12, 2007
To most investors, closed-end funds have been the red-headed stepchild of the investment world. Few people pay attention to these funds, and even fewer understand exactly what they are. However, as a recent Wall Street Journal article highlighted, closed-end funds have been on fire so far this year. Billions of dollars have found their way into these funds in the first few months of the year, and many fund companies are planning huge IPOs of closed-end funds in the coming months.
Now, anytime something starts getting touted as "the next big thing," it's always Foolish to stop and take a critical look before you hop on the investment bandwagon. In the case of closed-end funds, what's behind all the hype?
Back to basics
And while a closed-end fund can hold the same shares that open-end mutual funds do, shares of the closed-end fund can be traded at any time during the trading day. Open-end funds' shares, in contrast, can be traded only at the closing price at the end of trading on that particular day.
Open-minded about closed-end funds
So why are these oft-forgotten funds suddenly experiencing a surge of popularity? While part of the story may be a renewed interest in the higher yields that many of these funds tend to offer, a bigger part probably has to do with exchange-traded funds. ETFs have been one of the fastest-growing investment vehicles in recent memory. Again, part of their appeal stems from investors' ability to trade ETFs throughout the trading day. Closed-end funds share this flexibility, and they're likely catching the tailwind of popularity that ETFs have created. I'm guessing that without all the industry focus on