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What is Closed End fund or CEF? plus Top CEFs

Updated on April 3, 2011

Background

A Closed-end fund is similar to exchange traded fund (ETF), but with limited number of shares. Rarely new shares are issued after its initial public offering (IPO).

The characteristics of Closed-End funds are:

  1. Usually, an investor can purchase shares in a closed-end fund by buying shares on a secondary market such as the New York Stock Exchange (NYSE) or from a broker, market maker, or other investor.
  2. The price of the closed end funds is traded similar to the stock or ETF and may be less or more than NAV (Net Asset Value). If the price is higher than NAV, it say to be selling at premium; when it is lower than NAV, it is selling at a discount to the NAV.
  3. Its shares can be traded during the market day at any time such as pre-market (8:00am-9:30am EST), market (9:30am-4:00pm EST) or post-market (4:00pm-6:00pm EST).
  4. The portfolios of CEF generally are managed by investment advisers. They are registered with the SEC.


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Cefconnect website (ex etfconnect website)

Useful website to consider for CEF is www.CEFconnect.com, and www.cefa.com. This website was provided Nuveen Investment. This website provides much good information about the NAV or premium of the CEF price. I also provide distribution/ dividend as well as fund composition. After checking this website, I usually will analyze from individual fund website to check the details. You can select whether it is a fixed income fund or equity fund.

The fixed income fund is classified as follows:
1. Tax Free income:
a. State Municipal fund
b. National Municipal fund
c. High Yield Muni fund

2. Taxable income:
a. Convertible
b. Investment Grade Corporate
c. High Yield Corporate
d. Mortgage Bond
e. Senior Loan

3. US equity:
a. Covered call
b. Dividend equity
c. Real Estate (REIT)
d. Energy etc

4. Non Us equity
a. Asia Equity
b. Emerging Market Equity
c. Global Equity etc

Major CEF Provider

Major players in Closed End Funds are:
- Nuveen
- BlackRock
- Invesco (recently purchase Morgan Stanley Unit)
- PIMCO
- Alliance Bernstein etc

How to purchase CEF
Personally, I have purchased CEFs multiple times. I usually purchased them during the market downtrend around. CEF typically over-correct to the downside compare to general market. I always checked the following before I purchase the fund:
1. Consider whether it is a fixed income fund or equity fund.
2. Check the expense ratio. If it is >2%, look for other fund. Typically, 0.4%-2.0% is a good indicator for CEF.
3. Check the Total Net Asset. Higher Total Net asset is desirable. This usually mean the fund is more liquid.
4. Whether the current market price of the CEF is lower than NAV or not. If it is lower, I’ll check the composition of the funds. Also compare the premium/discount to 52 week average. A lower premium/discount is desirable.
5. Check whether it has any distribution or dividend.
6. Do more research from website about the fund
7. Ready to buy CEF after extensive research. You can buy from any brokerage.

Personally, I like the following CEF:
1. National Municipal bond
2. State Specific Municipal bond
3. Equity fund with high dividend and sell at discount to NAV.

For more information you can check the details in the following links:
SEC
Wikipedia
Investopedia

Well Known & Top Closed End Funds

(click column header to sort results)
Fund Name  
Ticker  
Fund Type  
Strategy  
Baseline Expense  
Yield  
Premium / Discount  
Market Cap  
Closing Price  
Effective Leverage  
Nuveen Municipal Value
NUV
Bond
National Municipal
0.60%
5.22%
-0.55%
$1774M
$8.96
2.75%
AllianceBernstein Income Fund
ACG
Bond
Government
0.69%
6.25%
-11.11%
$1866M
$7.68
31.33%
PIMCO High Income Fund
PHK
Bond
High Yield
1.14%
10.90%
41.86%
$1620M
$13.42
27.94%
PIMCO Corporate Opportunity
PTY
Bond
Investment Grade
1.20%
7.26%
16.19%
$1288M
$19.02
31.25%
BlackRock Income Trust
BKT
Bond
Mortgage Bond
0.91%
4.73%
-12.39%
$430M
$6.72
17.69%
Central Fund of Canada
CEF
Stock
US Commodities
0.34%
0.04%
7.73%
$4618M
$19.38
 
EV Tax-Managed Global Fund
EXG
Stock
Covered Call
1.06%
10.50%
-7.83%
$3308M
$10.83
 
ING Clarion Global Real Estate
IGR
Stock
Global Real Estate
0.98%
6.63%
-7.18%
$950M
$8.15
5.42%
India Fund Inc
IFN
Stock
Foreign Asia
1.05%
0.30%
-2.87%
$1320M
$29.81
 
Alpine Total Dynamic Dividend
AOD
Stock
Global Equity Dividend
1.43%
10.78%
-3.92%
$1353M
$6.12
11.27%
BlackRock Intern'l Grth & Inc
BGY
Stock
Global Equity
1.13%
13.11%
-2.99%
$1141M
$10.37
 
Updated on 2/4/2011

Top Closed End Funds in Different Classes

Nuveen Municipal Value

As part of Nuveen Asset Management fund, Nuveen Municipal Value fund objective is to provide current income exempt from federal income taxes and to enhance the portfolio value through selection of tax-exempt bonds or municipal bonds. This Nuveen Municipal Value fund is part of municipal bond funds. The fund has a total net asset of 1.83 billion as of February 2011. The fund manager is Thomas C. Spalding Jr. since 1987. The top 5 sectors are Tax Obligation / Limited, Health Care, US Guaranteed bonds, Transportation, and General Tax Obligation. The top 5 States allocation include California, Illinois, Texas, New York, and New Jersey. The current total expense ratio is 0.61% per year. The fund is currently traded at -0.55% discount from its Net Asset Value (NAV). It also currently has a yield of 5.22% per year which is tax free from federal tax.

AllianceBernstein Income Fund

AllianceBernstein Income Fund seeks to provide high current income and capital appreciation by investing in high yielding government and corporate fixed income securities or bonds. The fund sponsor is Alliance Bernstein LP. The fund is managed by Paul J. DeNoon (2003), Doug Peebles (2003), Gershon Distenfeld (2006), and Kewjin Yuoh (2006). Top 5 countries allocation includes USA (85.55%), Russia, Brazil, Columbia and Indonesia. The top 5 sectors are US Treasuries, Investment Grade Corporate bond, High Yield Corporate Bond, Pass through Mortgage bond, and Mortgage Backed Securities (MBS). The current total expense ratio is 0.91% per year (0.69% of baseline expense and 0.21% of interest expense). This AllianceBernstein fund also has a distribution rate of 6.25% per year.

PIMCO Corporate Opportunity

PIMCO Corporate Opportunity fund seeks high current income and capital appreciation. This PIMCO CEF fund invests in corporate debt and other corporate income producing securities. The fund manager is Bill Gross since 2009. The fund has 98.45% of country allocation in USA market. The Top 6 sectors of this fund are Other, Banks, Non-Captive Consumer Finance, Insurance Life, Airlines, and Non-Captive Diversified Finance. There are 422 bonds in its holding currently. The total expense is 1.29% per year which includes 1.20% baseline expense and 0.09% interest expense. As of February 4 2011, the fund sells at 16.19% premium from its NAV. The bond Average Duration in this fund is 11.03 years.


Central Fund of Canada

Central Fund of Canada fund objective is to invest in alternative long term investment vehicle such as gold and silver bullion commodities. As February 2011, the total Net Asset of the fund is 4.28 billion. The fund sponsor is Central Group Alberta Ltd. The fund manager is J C Stefan Spicer since 1983. The Top 4 sectors are Gold Bullion (55.46%), Silver Bullion (41.89%), Short Term Bond and NCA.

EV Tax-Managed Global Fund

Eaton Vance Tax Managed Global Fund seeks current income with capital appreciation by investing in global common stock and through utilizing an options strategy. The total net asset is 3.59 Billion as of February 2011. The fund is managed by Michael A Allison and Walter A. Row since 2007. Top 5 countries allocation includes USA, United Kingdom (UK), Germany, France and Switzerland. There are a total of 150 holdings in this fund.


Where can I buy CEF?

Since CEFs are traded like stock, I usually buy closed end funds through many online brokerages such as

  1. Zecco - Offer 10 free trades per month with $25,000 account balance or trade 10 times or more to get 10 free trades.
  2. Just2trade - One of discount brokerage with flat fee commission of $2.50 per trade. Also offer pre market and after hour market trading with small extra fees.
  3. Optionhouse - Another online discount brokerage with flat fee commission of $2.95 per trade
  4. Thinkorswim (TOS) - Offer various platform and very well known for active traders
  5. TD Amertirade - Offer various trading tools and you can trade stock or ETF or CEFs for $9.99 per trade. Recently offer 100+ ETF for free when holding the ETF for 30 days.
  6. Fidelity - Complete brokerage with financial services such as credit card, checking account. Commission fee is $7.95 per trade. Also offer 25 ishares ETF for free trading.
  7. Charles Schwab - Similar to Fidelity, also offer various financial services (checking & credit card). The standard commission is $8.95 per trade.

 

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