I don’t think I have ever written about closed-end funds. It’s not because there is anything inherently wrong with the structure. They’re like traditional mutual funds except they don’t trade according to a daily tally of the net asset value of the investments. Instead, they are traded like shares of stock which have a sale price that exists independent of the net asset value.
There is nothing wrong with this.
However, as you might guess, closed-end funds naturally struggle to attract a client base. If you are going to stuff a commodities-based closed-end fund with shares of Exxon, Conoco, Chevron, Shell, and BHP Billiton, why wouldn’t an investor just avoid the 1.5% annual expenses and buy the shares of the companies outright in their own names?
To create some appeal, closed-end funds in the 1990s began leveraging their funds with debt so that they could add income to distribute. The … Read the rest of this article!