As an investment firm that specializes in the closed-end fund (CEF) market (and manages two publicly traded mutual funds that are dedicated to investing in discounted CEFs), we challenged ourselves to identify some of the most unique and interesting facts about CEFs that we’ve come across professionally. Here is our list of 14 facts about CEFs that the average investor probably doesn’t know:
- Up until this year, you could buy and sell CEFs on Robinhood.
- CEFs were phased out of Robinhood starting on January 11, 2021 (read more here). As a matter of interest, you can still sell CEFs that continue to be held in a Robinhood account, but you can no longer buy CEFs through Robinhood. CEF trading was phased out on Robinhood alongside limited partnerships, royalty trusts, tracking stocks, New York registry shares, and units.
- The first ever CEF pre-dates the American Revolution.
- A Dutch merchant, Adriaan van Ketwich, sold 2000 units of his investment trust (called Eendragt Maakt Magt – which translates to Unity Creates Strength) to the Dutch public in 1774. After that, participation in the fund was available only by purchasing shares from existing shareholders in the open market. Annual financial statements were produced, and available on request. This first-ever CEF survived until 1824.
- The first US CEF dates to the 19th century.
- The Boston Personal Property Trust was launched in 1893.
- Today, the total assets in US CEFs are about 1% of the size of the total assets in US open-end funds.
- The market cap of Apple Inc. (AAPL) is about ten times as large as all US CEFs put together.
- In most cases, a CEF is closed to new investors (which is why they are called closed-end funds).
- Anyone who wants to purchase a CEF after its initial public offering must buy it from an existing shareholder in the open market.
- Over time, the average CEF delivers almost all its return in the form of cash distributions to its shareholders.
- We believe that a diversified portfolio of CEFs is one of the few ways investors can access both highly diversified exposure to active management across asset classes, and a steady cash distribution income.
- CEFs trade in the open market like a single stock, but a CEF typically holds hundreds (or even thousands) of stocks, bonds, and/or other investments in its underlying portfolio.
- A CEF can often be purchased for less than it is worth.
- The price of a CEF moves independently from its Net Asset Value (NAV), meaning an investor can purchase a CEF at a discount (price below NAV) or a premium (price above NAV). Our unique mutual fund offerings focus on investing in CEFs that trade at significant discounts to their NAVs.
- CEFs can sometimes be converted into open-end funds or exchange traded funds (ETFs).
- Such conversions occur somewhat rarely, but an investor can typically liquidate their position at-NAV following a conversion (if desired).
- CEFs are sometimes liquidated (often in response to activist pressure) with the cash proceeds returned to shareholders at-NAV.
- Although somewhat rare, this typically adds to the total return of an investor if they purchased the CEF at a discount to NAV (one more reason why we believe it’s wise to consider discounted CEFs for investment).
- There are hundreds of CEFs that exist, representing nearly every asset class in the investment universe.
- Our CEF Market Insights page has readily available statistics on the CEF market (updated through the most recent quarter-end).
- The average CEF has a shareholder base that is represented by more than 70% individual retail investors.
- Compare this to the average US stock, whose shareholder base is typically represented by more than 70% institutional investors.
- Unlike some other pooled investment products, CEFs purchased on the open market have no minimum investment amount, no front-end or back-end sales loads, and no gates or restrictions on the ultimate sale of your investment.
Still looking for more information about CEFs? Consider checking out our Understanding Closed-End Funds page, which contains in-depth information about CEF basics, key terminology, potential advantages of CEFs, different types of CEFs, leverage and CEFs, and how return of capital works with CEFs.