The Origin of Opportunity in Closed-End Fund Investing
Closed-end funds (CEFs) offer a unique investment opportunity due to several structural features and special market dynamics. While open-end funds create and destroy shares in response to investor demand enabling subscriptions and redemptions at net asset value (NAV) CEFs instead have a fixed number of shares, giving CEF managers additional flexibility to add value.
Purchasing shares of an individual CEF at a discount to its NAV offers both elevated income levels and price appreciation potential relative to identically positioned open-end peers. In this paper we look at how systematic management of a portfolio of CEFs may capture elevated income and total returns by exploiting inconsistent pricing of CEFs within and across various asset classes.
