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Differences between open and closed end funds, pt 2

- Unlike an open end fund, shares of a closed end fund are not redeemed by the fund.

- closed end fund investors who want to cash out must sell their shares on the market, at the current market price.


Who manages closed end fund portfolios?

An investment advisor


Other names for closed end funds

"Closed end investment"
"Closed end mutual fund"



Closed end fund

- A publicly traded investment company that raises a fixed amount of capital through an IPO.

- the fund is then structured, listed, and traded like a stock on a stock exchange.

- unlike a conventional mutual fund, a closed end fund raises capital only once through an IPO by issuing a fixed number of shares, which are purchased by investors as stock.

- unlike regular stocks, closed end fund stock represents an interest in a specialized portfolio of securities that is actively managed by an investment advisor and which typically concentrates on a specific industry, geographic market, or sector.

- the stock prices of a closed end fund fluctuate according to market forces (supply and demand).


When was the first CEF offered?



How are CEFs created?

- They are launched through IPOs, which raise a fixed amount of money by issuing a fixed number of shares.

- The fund's sponsor invests the IPO proceeds according to the CEFs underlying mandate and then the shades trade on the equities markets.

- because the shares of a closed end fund are bought and sold on the open market, investor activity has no impact on underlying assets in the fund's portfolio.

- unlike traditional mutual funds, which must hold cash for investor redemptions, CEFs can be fully invested in their assets.



Net asset value

- A mutual fund or ETFs per share value.

- divide total value of all outstanding shares by number of shares outstanding.


What do CEFs invest in?

- common stocks
- preferred stock
- municipal bonds
- corporate bonds


Difference between open and closed end funds?

- Closed end funds have an IPO, after which, no additional shares are offered. And the shares then trade on a secondary market at a price that is either higher (at a premium) or lower (a discount) than the fund's NAV.

- Open end funds, on the other hand, do not put a cap on how many shares are issued to investors. And their shares sell at NAV, which is calculated once per day (at the end of the trading day).


Primary reason to buy closed end funds?



Market cap

Total dollar market value of all of a company's outstanding shares.

Multiply company's outstanding shares by share price.


What are the 3 types of equity mutual fund styles?

companies that trade at a discount in relation to their intrinsic value. Found in depressed industries, industries that are out of favor. (Low P/E ratio, low price-to-book value ratio, Has a dividend)

Companies that are expected to have high future earnings growth. These trade at a premium. (High P/E ratio, high price-to-book value ratio, high price-to-sales ratio, no dividend)

Companies that have a blend of both value and growth categories.



Agency debenture

Debt issued by a federal agency or GSE for financing purposes.

- are backed by the faith and credit of the US govt.



Government sponsored enterprise

Example: Tennessee Valley Authority

Can issue agency debentures (agency debt)