Closed-end Funds Rallying To Start Year

Angela Pruitt in the Wall St. Journal (sub. req.) notes that CEFs are off to a torrid start for 2006. Excerpts:

This resurgence follows a brutal fourth quarter, when the sector suffered one of the most severe downturns in years... The average discount -- the difference between the fund's share price and its net asset value -- on many closed-end funds has narrowed dramatically since the beginning of January after ballooning last quarter on so-called tax-loss selling and amid investor concerns about performance.

A combination of bargain hunting and expectations the Federal Reserve will put the brakes on raising short-term interest rates this year have fueled sharp gains, particularly among fixed-income funds... Analysts say that retail investors, who represent the biggest core of closed-end fund holders and typically buy at the initial public offering among newer funds, could reap greater returns if they scooped up more discount-bearing vehicles.

"The recovery is a testament to the benefits of buying closed-end funds at a deep discount," said Alexander Reiss, a senior analyst at Ryan Beck & Co., noting that buying a closed-end fund at a deep discount increases the yield on the investment.