Closed-end investment fund discounts

These funds may also trade at a premium if a historically successful stock picker manages the fund. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. Mutual Funds Mutual Fund Essentials. When this situation occurs and the fund is trading above this price, it is said to be trading at a premium ; conversely, when the fund is trading below this price, it is said to be trading at a discount. Efficient market hypothesists have tried to decipher discounts and premiums for years with myriad explanations. A closed-end fund is a portfolio of pooled assets that raises a fixed amount of capital through an initial public offering IPO and then lists shares for trade on a stock exchange. The table below sets forth the 9 scenarios that can play out when purchasing shares at an absolute discount.

Mutual Funds and Mutual Fund Investing — Fidelity Investments

Important legal information about the email you will be sending. By using this service, you agree to input your real email address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be «Fidelity. CEFs have an underlying portfolio of securities.

Mutual Funds and Mutual Fund Investing — Fidelity Investments

A closed-end fund CEF or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. In the United States, closed-end funds sold publicly must be registered under both the Securities Act of and the Investment Company Act of Closed-end funds are usually listed on a recognized stock exchange and can be bought and sold on that exchange. The price per share is determined by the market and is usually different from the underlying value or net asset value NAV per share of the investments held by the fund. A premium might be caused by the market’s confidence in the investment managers’ ability or the underlying securities to produce above-market returns.

What gives rise to discounts and premiums? Why is the market seemingly inefficient?

Important legal information about the email you will be sending. By using this service, you agree to input your real email address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be «Fidelity. Even though they have been traded in disconuts US for over a century, closed-end funds CEFs are not well understood.

A closed-end fund is not a traditional mutual fund that is closed to new investors. At its most fundamental level, a CEF is an investment structure not an asset classorganized under the regulations of the Investment Company Act of Like a traditional mutual fund, a CEF invests in a portfolio of securities and is managed, typically, by an investment management firm. But unlike mutual funds, CEFs are closed in the sense that capital does not regularly flow into them when investors buy shares, and it does not flow out when investors sell shares.

After the initial public offering IPOshares are not traded directly with the sponsoring fund family, as is the closec-end with open-end mutual funds. Instead, shares are traded on an exchange, typically, and other market disxounts act as the corresponding buyers or sellers. The fund itself does not issue or redeem shares daily. Like stocks, CEFs hold an initial public offering at their launch.

With the capital raised during this IPO, the portfolio managers then buy securities befitting the fund’s investment strategy. So, because capital does not flow freely into and out of CEFs, they are referred to as «closed-end» funds. The «closed-end» structure gives rise to discounts and premiums. After the IPO, a CEF’s shares trade on the open market, typically on an exchange, and the market itself determines the share price. The result is that the share price typically does not match the net asset value of the fund’s underlying holdings.

If the share price is higher than the net asset value, shares are said to be trading at a «premium. First, it makes CEFs a good structure for investing in illiquid securities, such as emerging-markets stocks, municipal bonds.

The higher risk involved with investing in illiquid securities could translate into higher returns to shareholders. Second, regulators allow the funds to issue debt and preferred shares, with strict limits on leverage.

The point is that CEFs are not highly leveraged, though any amount of leverage magnifies the volatility of the fund’s net asset value. Closed-end funds may trade at a discount or premium to their NAV and are subject to the market fluctuations of their underlying investments. Shares of closed-end funds frequently trade at a market price that is a discount to their NAV.

Closed-end funds are subject to management fees and other expenses. Votes are submitted voluntarily by individuals and reflect their own opinion of the article’s helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.

Skip to Main Content. Search fidelity. Investment Products. Why Fidelity. Print Email Email. Send to Separate multiple email addresses with commas Disccounts enter a valid email address. Your email address Please enter a valid email address. Message Optional. Next steps to consider Find Stocks. Use closed-end investment fund discounts closed-end fund screener.

Closed-end funds vs. Please enter a valid e-mail address. Your E-Mail Address. Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know.

It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf. The subject line of discountss e-mail you send will be «Fidelity. Your e-mail has been sent. All Rights Reserved. Neither Morningstar nor its content providers funs responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Article copyright by Morningstar, Inc. Reprinted with permission from Morningstar, Inc. The statements and opinions expressed in this article are those of the author.

Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data. Please enter a discounst ZIP code.

High Yield Investing: Closed-End Funds

What gives rise to discounts and premiums? Why is the market seemingly inefficient?

Search fidelity. Closed-end fund screener. The fund sponsor sells shares directly to investors and buys them back as. The price of a closed-end fund fluctuates according to inveatment and demand, as well as the changing values of its portfolio’s holdings. Mutual Fund Essentials. Mutual Fund Essentials Mutual Fund vs.