Chamois16

Converting Closed-End Funds to ETFs: Has the Trend Begun?

There seems to be a prevailing view here that discounts for closed-end funds are somehow undesirable. The discount is te natural investor offset to the fund's fees, adjusted for the liquidity of the CEF portfolio. Iow, plain vanilla equity CEF deserve a higher discount than bond or more sphisticated portfolio holdings such as syndicated loans and derivatives. The issue ought not be the discount, but the extent of excursions from it which imply CEF investor sentiment different from that of the broader market.

The prinicpal disadvantage of CEF is their low daily trading volumes, which limit their utility for larger investors. Otoh, there are many offsetting advantages, such as leverage, hugher yields and freedom from cash drag, which make CEF attractive to average retail investors.

The reasons why CEF managers would want to convert to ETF on a large scale are certainly not clear, nor is the rationale which might be persuasive to CEF investors.