Closed-End Funds Knowledge Center

Closed-End Funds Knowledge Center

Closed-end funds have become popular as a way to access a wide range of asset classes and investment strategies, with the potential to generate high levels of income. Cohen & Steers is one of the largest domestic investors in closed-end funds and offers this Knowledge Center as a resource for learning about the closed-end fund market and staying informed about your investments.

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What is a closed-end mutual fund?

A closed-end fund is an investment company that issues a fixed number of shares through an initial public offering (IPO). The assets of the fund (a portfolio of securities) are professionally managed. After the IPO, closed-end fund shares trade in the secondary market, either on an exchange or on the over-the-counter market, much like a stock. The trading price of the fund’s shares is determined by its market price, not by the fund’s net asset value (NAV).

What is the difference between a closed-end mutual fund and an open-end mutual fund?

Open-end funds continuously sell and redeem shares for investors. Closed-end funds sell a fixed number of shares once, in an initial public offering. Closed-end fund shares cannot be redeemed directly, and are only sold in a secondary market, typically the American Stock Exchange, New York Stock Exchange or the Nasdaq. Open-end fund share prices are determined by the fund’s net asset value (NAV), which is calculated at the end of each business day. Closed-end fund share prices fluctuate throughout the day, as they are driven by market price, which is determined by supply and demand.

What is the difference between a closed-end mutual fund and an open-end mutual fund that is “closed”?

Closed-end mutual funds issue a fixed number of shares, which are bought and sold on a stock exchange or market. When an open-end mutual fund is “closed”, this means the fund is no longer allowing new investors into the fund.

What is the difference between net asset value (NAV) and the market price of closed-end mutual funds?

Per share net asset value (NAV) is the current value of a fund’s assets, less liabilities, divided by the total shares outstanding. Market price is the price an investor pays or receives when he or she purchases or sells shares of a closed-end mutual fund. Again, this price is determined by supply and demand for the closed-end fund on a stock exchange or market. Both open-end and closed-end mutual funds calculate NAV per share, but only open-end mutual funds allow transactions at the fund’s NAV.

What does it mean when a closed-end mutual fund trades at a discount or premium?

A premium occurs when the market price of a closed-end mutual fund share is more than its net asset value per share (NAV). Conversely, a discount occurs when the market price of a closed-end mutual fund share is less than its NAV per share.

Shares of many closed-end funds frequently trade at a discount from their net asset value. The funds are subject to stock market risk, which is the risk that stock prices overall will decline over short or long periods, adversely affecting the value of an investment in a fund.

For US residents only.

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