July 31, 2018

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.

Investment advisory services offered through Parametric Portfolio Associates^® LLC ("Parametric"), an investment advisor registered with the US Securities and Exchange Commission (CRD #114310). Parametric is also registered as a portfolio manager with the securities regulatory authorities in certain provinces of Canada (National Registration Database No. 42850) with regard to specific products and strategies. Parametric provides advisory services directly to institutional investors and indirectly to individual investors through financial intermediaries. The information on this website does not constitute an offer to sell, or a solicitation of an offer to purchase, securities in any jurisdiction to any person to whom it is not lawful to make such an offer. Investing entails risks, and there can be no assurance that Parametric (and its affiliates) will achieve profits or avoid incurring losses. All investments are subject to potential loss of principal. Parametric does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the disclosure page for important information about investments and risks.

S&P Dow Jones Indices are a product of S&P Dow Jones Indices LLC (“S&P DJI”) and have been licensed for use. S&P^® indexes are registered trademarks of S&P DJI; Dow Jones^® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); S&P DJI, Dow Jones, and their respective affiliates do not sponsor, endorse, sell, or promote Parametric and its strategies, will not have any liability with respect thereto, and do not have any liability for any errors, omissions, or interruptions of the S&P Dow Jones Indices.

The Origin of Opportunity in Closed-End Fund Investing

Parametric Dividend Income Investing: Frequently Asked Questions

Three Myths of Tax Loss Harvesting

Tax-Managed SMAs: Better Than ETFs?