Closed end funds (CEF) are one of the few remaining inefficient markets out there and if you play it right, it can almost be like gaming the system. Greg Neer, director of research and fund manager at Relative Value Partners says investors can get meaningful outperformance by either closely following the market themselves, or hiring a manager to do it on their behalf.
“One CEF I believe is interesting for most investors is the Special Opportunities Fund (SPE 12,18 +0,02 +0,16%),” he says. SPE is run by Phil Goldstein of Bulldog Investors. The fund focuses on deep value stocks and activist-oriented opportunities across an array of markets. It’s up around 5.3% this year and pays a 3.9% dividend yield.
Neer likes the fact that SPE is trading at a discount of almost 11%, and “we believe the fund will provide attractive risk adjusted returns over time. His investment strategy is not replicated by other structures, such as ETFs or open-end funds, so it is often underrepresented in portfolios,” he says.
Closed end funds are like the ugly cousin of the mutual fund world. Both structures give investors actively managed portfolios, but they are different on the transaction end. Just a reminder, CEF investors have an ability to purchase their funds at a significant discount to its net asset value. That’s not the case with mutual funds.
Neer says CEFs offer a few advantages. He names two: the discounted NAV which provides meaningful additional performance beyond the return of assets; and yields that tend to be higher than ETFs and open-end funds. Arbitraging Closed End Fund (CEF) Inefficiencies
Closed end funds (CEF) are one of the few remaining inefficient markets out there and if you play it right, it can almost be like gaming the system. Greg Neer, director of research and fund manager at Relative Value Partners says investors can get meaningful outperformance by either closely following the market themselves, or hiring a manager to do it on their behalf.
“One CEF I believe is interesting for most investors is the Special Opportunities Fund (SPE 12,18 +0,02 +0,16%),” he says. SPE is run by Phil Goldstein of Bulldog Investors. The fund focuses on deep value stocks and activist-oriented opportunities across an array of markets. It’s up around 5.3% this year and pays a 3.9% dividend yield.
Neer likes the fact that SPE is trading at a discount of almost 11%, and “we believe the fund will provide attractive risk adjusted returns over time. His investment strategy is not replicated by other structures, such as ETFs or open-end funds, so it is often underrepresented in portfolios,” he says.
Closed end funds are like the ugly cousin of the mutual fund world. Both structures give investors actively managed portfolios, but they are different on the transaction end. Just a reminder, CEF investors have an ability to purchase their funds at a significant discount to its net asset value. That’s not the case with mutual funds.
Neer says CEFs offer a few advantages. He names two: the discounted NAV which provides meaningful additional performance beyond the return of assets; and yields that tend to be higher than ETFs and open-end funds.