Closed-end funds are funds, which are issued just like normal shares. They take off with an initial public offering (ipo) with a fixed number of shares, these are negotiable on the stock market. This system is in contradiction to open-end funds, where they issue new parts for each new investor.
The theoretical price of each closed-end share is called the Net Asset Value (NAV). This contains the total value of all the financial products (like shares, bonds, currencies,…) in the closed-end fund, divided by the total number of shares. But the real price of the fund depends on its supply and demand. When you can buy under the NAV, you will enjoy a discount. If you have to pay more than the NAV, you need to pay a premium.
Last year, there were two trends visible at the market of closed-end funds. On the one hand, there was a calm increase of the interest in equities. On the other hand, some funds made distribution payments. These payments are using the same principle like dividends of common shares, which make them charming for investors.
Like the rest of the stock exchange, the most closed-end funds rebounded last year. As a result, many discounts were reduced or some funds even have a premium now. However, if you are looking attentive, you may find some funds with up to seventeen percent discount.
Investors should make a choice: going for a high discount and hoping that the closed-end fund will return to its NAV or investing in a fund with a higher payout. As we all know, this situation depends on the future market changes. If the stock market drops, this will also have its consequences on the closed-end funds. But maybe, we could discover some interesting discounts.
http://www.investmentnews.com/article/20100425/REG/304259961
Benny De Meyer, 2FV4
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I agree with you that the investors should chose one or the other not both.
They need to chose what at the moment is the most interesting for them. Also they should look for something that gives some security in a time of crisis like this one now
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