Investors Show Renewed Interest In Closed-End Funds

Caroline Maxwell, Investors Offshore.com

19 February 2001

According to analysts at fund tracker, Lipper Inc., investors have shown renewed interest in closed-end mutual funds in the new year, causing the number of bargains available to shrink dramatically.

Unlike traditional mutual funds, closed-end funds have a finite number of shares, which are traded freely on exchanges, and tend to behave as a stock would. After the launch of the fund, an investor wishing to purchase shares must find a seller to buy from, and vice versa, which means that the size of the fund does not change with investor activity.

Many investors prefer this type of mutual fund, due to the fact that they tend to trade at a discount to their Net Asset Value. Although the size of the fund does not vary, trading prices of closed-end funds behave according to investor demand.

The increased buying activity in the new year has affected these discounts, causing them to shrink rapidly, and in the case of junk bonds, trade at unheard of premiums. A senior research analyst at Lipper, Don Cassidy, summed up the recent mood: 'Closed-end fund investors seem to have realised that department stores weren't the only places to find discounted merchandise in December.'

The whole closed end sector comprises more than 500 funds, with total assets of over $144 billion, and of these 500+, Lipper found that 460 closed-end funds were trading at a median discount of 5.8% on February 9th, compared with 11.5% on December 15th last year.

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