Closed-End Funds
Savvy investors looking for long-term returns have long been drawn to closed-end funds (CEFs). These funds are portfolios of pooled assets with a fixed number of shares that are traded on a stock exchange, and they can often provide investors with strong returns and a steady stream of income.
The Best-Kept Secret in Income Investing
Predictable, diversified income investors can buy
at a discount
CEFs offer some important benefits
CEFs trade at market price, not necessarily their net asset value (NAV). As a result, investors may be able to buy shares of a
CEF at a discount—or premium—to its NAV.
CEFs are required to
pass capital gains on to investors, as well as distributions from stock dividends or bond interest.
Professional fund managers use their expertise in their specialized fields of focus
to manage CEFs’
underlying investments.
Income potential
Active management
Ability to buy at a discount
What you may not know about CEFs
Aberdeen Global Premier Properties Fund (AWP)
Discount to Net Asset Value as of July 10, 2019
Investors can buy or sell CEF shares on major stock exchanges.
1
CEFs are open to new investors. "Closed" simply means the fund offers a fixed number of shares (unlike open-end mutual funds that continually issue new shares).
2
Some CEFs use leverage (borrowing money) to invest, which can enhance or amplify returns and distributions.
3
As long-term holdings, CEFs can be useful vehicles for retirement savings due to their income and growth potential.
4
CEFs can offer opportunities for individual investors to enter illiquid markets, niche sectors, and pre-emerging markets – investments usually reserved for institutional investors.
5
Aberdeen Asia-Pacific Income Fund, Inc. (FAX)
Discount to Net Asset Value as of July 10, 2019
Find the most recent NAV discount here.
Year First
CEF Formed
1893
Number of Funds
530
Total Net Asset Value
275
$
Billion
Source: 2018 Investment Company Fact Book.
Find the most recent NAV discount here.
Understanding the difference between open and closed funds
Closed-end funds operate very differently from their open-ended counterparts, such as mutual funds and ETFs. When investors want to buy shares of an open-end fund, the fund can simply create new shares to supply the demand without affecting share price or NAV.
However, a CEF cannot create new shares, so new investors must buy shares from current shareholders. Depending on demand, price per share can rise or fall below NAV, meaning the CEF will trade at a premium or a discount. So while total shares and NAV remain the same, price per share can shift.
Aberdeen Total Dynamic Dividend Fund (AOD)
Discount to Net Asset Value as of July 10, 2019
Find the most recent NAV discount here.
Take a look at the hypothetical* scenario below, which illustrates how closed-end funds can trade a discount or premium to net asset value (NAV) for each share.
Fund net assets
Total shares
Price of one share
NAV of one share
1 million
$
2 million
$
1 million
$
2 million
$
50
¢
50
¢
5
¢
50
¢
CLOSED-END FUNDS
Open-end fund post investment
CLOSED-END FUNDS
Income potential
Ability to buy at a discount
Active management
Find the most recent NAV discount here.
Aberdeen Emerging Markets Equity Income Fund, Inc. (AEF)
Discount to Net Asset Value as of July 10, 2019
Find the most recent NAV discount here.
9
5
0
%
.
The India Fund, Inc. (IFN)
Discount to Net Asset Value as of July 10, 2019
1
7
1
%
.
1
6
5
%
.
1
3
9
%
.
8
3
7
%
.
1
3
1
1
$
¢
¢
$
1.1 million
$
40
¢
50
¢
2.2 million
$
Closed-end fund post investment
Before investment
Open-end fund post investment
Open-end fund post investment
NAV of one share
In this example, both funds have the same total value and the same number of shares, but one is selling at a discount to NAV and one is selling at a premium to NAV.
50
¢
4
10% discount to NAV
5
Click to learn more
5
5
10% premium to NAV
1 million
$
50
¢
¢
2 million
$
Before investment
Open-end fund post investment
4
10% discount to NAV
5
4
10% premium
to NAV
IMPORTANT INFORMATION:
Past performance is not an indication of future results.
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. The Net Asset Value (NAV) is the value of an entity’s assets less the value of its liabilities. The Market Price is the current price at which an asset can be bought or sold. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.
Closed-end funds are similar to mutual funds and exchange-traded funds (ETFs) in that they professionally manage portfolios of stocks, bonds or other investments. Unlike mutual funds and ETFs, which continuously sell newly issued shares and redeem outstanding shares, most closed-end funds offer a fixed number of shares in an initial public offering (IPO) that are then traded on an exchange. Open-end funds can be bought or sold at the end of each trading day at their net asset values (NAVs). Because closed-end funds and ETFs trade throughout the day on an exchange, the supply and demand for the shares determine their market price; closed-end funds’ and ETFs’ market prices may fluctuate through the trading day and those prices may be higher or lower than their NAVs. Closed-end funds, mutual funds and ETFs charge investors annual fees and expenses. All of these products may use leverage to enhance their returns, which can magnify a fund’s gains as well as its losses. Closed-end funds typically do not have sales-based share classes with different commission rates and annual fees. All three vehicles seek to deliver returns based on their investment objectives, but none of them are FDIC insured. The Revenue Act of 1936 established guidelines for the taxation of funds, while the Investment Company Act of 1940 governs their structure. Aberdeen Asset Management does not provide tax or legal advice; please consult your tax and/or legal advisor.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments. There are also risks associated with investing in a single country, including the risk of investing in a single-country Fund. Concentrating investments in a single region subjects the Fund to more volatility and greater risk of loss than geographically diverse funds.
Equity stocks of small and mid-cap companies carry greater risk, and more volatility than equity stocks of larger, more established companies.
Dividends are not guaranteed and a company’s future ability to pay dividends may be limited.
The use of leverage will also increase market exposure and magnify risk.
Because the real estate funds concentrate their investments in the real estate industry, the portfolio may experience more volatility and be exposed to greater risk than the portfolios of many other mutual funds. Risks associated with investment in securities of companies in the real estate industry may include: declines in the value of real estate, overbuilding and increased competition; increases in property taxes and operating expenses; changes in zoning laws; casualty or condemnation losses; variations in rental income, neighborhood values, changes in interest rates and changes in economic conditions.
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).
The above is for informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the investments mentioned herein. Aberdeen Standard Investments (ASI) does not warrant the accuracy, adequacy or completeness of the information and materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials.
Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither ASI nor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document.
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US-150719-94462-1
*For illustrative purposes only. Hypothetical positions are used here and actual market conditions may have a different impact on a portfolio. This example is not indicative of any actual fund or product. No assumptions regarding future performance should be made.