Closed-End Funds Are Better Used Than New These Often Overlooked Mutual Funds, Which Issue a Fixed Number of Shares, Can Offer a Good Return but Demand Close Scrutiny

By Guy Halverson, writer of The Christian Science Monitor | The Christian Science Monitor, September 19, 1995 | Go to article overview

Closed-End Funds Are Better Used Than New These Often Overlooked Mutual Funds, Which Issue a Fixed Number of Shares, Can Offer a Good Return but Demand Close Scrutiny


Guy Halverson, writer of The Christian Science Monitor, The Christian Science Monitor


QUESTION: When is a mutual fund not a mutual fund? Answer: When it is a closed-end fund. For millions of people, closed-end funds are the mystery products of the mutual-fund industry. With names that connote exotic global settings, such as the brand new "Templeton Russia Fund," which began trading Sept. 13, or describe entire economic sectors, such as the "Pilgrim Regional Bankshares Fund," closed-end funds tend to be overlooked by investors. Yet, in terms of return on investment and profits over time, they can be moneymakers. "This has been and continues to be a very good year for closed-end funds," says Patrick Winton, editor of the Closed-End Fund Digest and Real Estate Securities, a monthly newsletter published in Santa Barbara, Calif. "We have four model portfolios for closed-end funds, and all are up this year," Mr. Winton says. The balanced portfolio for equities is up 11 percent this year. The global growth portfolio is up 13.2 percent. The taxable income portfolio is up 12.4 percent. And the tax-free portfolio is up 14.5 percent. Although all these lag behind the Standard & Poor's 500 stock index, which is up around 25 percent this year, fans of closed-end funds say a slightly slower pace isn't as important as it may seem. And the reason, they say, is the nature of closed-end funds. Similar to publicly traded stocks Closed-end funds have characteristics of both mutual funds and publicly-traded stocks. A closed-end fund trades in the open market exactly the way shares of publicly traded companies do. That means, says Thomas J. Herzfeld, who heads up Thomas J. Herzfeld Advisors Inc., a brokerage-consulting firm in Miami, that savvy investors can profit by buying shares of closed-end funds at a discount to their net asset value and selling them at a premium. Compare this with a typical open-ended mutual fund, which is continually offering new shares. The purchase price of the fund's share is based on the net asset value of all securities in the fund. That means, Mr. Herzfeld says, that the purchase price is based on the total net assets of the fund divided by the number of outstanding shares, plus, in the case of load funds, a sales charge. No-load funds do not have a sales charge, and thus, shares are bought or redeemed at their net asset value. Closed-end funds, however, do not continually issue new shares. The fund issues a fixed number of shares and then invests the proceeds in various securities, such as stocks or bonds. Nor are the shares sold or redeemed by the mutual-fund company. Rather, the funds are listed on a stock exchange, mainly the New York Stock Exchange. The price at which the funds are sold reflects market sentiment about the fund. Many closed-end fund investors tend to be short-term traders, rather than long-term investors. They buy a fund when it is trading at a deep discount to its net asset value. If the discount shrinks, say from 15 percent to 5 percent, they sell it. If the discount again widens, they may buy it back. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Closed-End Funds Are Better Used Than New These Often Overlooked Mutual Funds, Which Issue a Fixed Number of Shares, Can Offer a Good Return but Demand Close Scrutiny
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.