Update! Last month I commented on some developments here in Canada that saw a closed end fund converted into an ETF. I asked if that was the beginning of a trend.
Maybe not a massive trend, but I now see that First Trust is doing the same with one of their closed end funds. It’s the First Trust Value Line® 100 Fund (NYSEARCA:FVL) and here’s the press release discussing the conversion. First Trust must really be commended for providing A LOT of information on their funds online.
Unlike the Claymore conversion in Canada that has a truly active manager with a classic active management mandate, the First Trust closed end fund seems to fit the model of other rules-based “quasi-active” ETFs such as their own new AlphaDex funds as well as the IntelliDex and fundamental weighted (FTSE-RAFI (NYSEARCA:PRF)) funds both from PowerShares.
The question is if and when we’ll see more traditional closed end funds converting into exchange traded funds? Furthermore, if by doing so, would we hopefully see a minimal spread (premium/discount) between the funds’ market price and the underlying net asset value. I’m sure that many investors who have exposures to the various country specific funds and thematic funds (infrastructure, for example) on the NYSE would be interested to see a structure, if possible, that would reduce, if not eliminate, this problem with closed end funds.
I’m fairly sure that a part three in this series will follow quite soon.