This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

ETFs vs. Closed-End: Read the Fine Print

Editor's Note: As part of Mutual Fund Monday, Gregg Greenberg also interviewed Richard Shaker of Shaker Financial Services, whose specialty is trading closed-end funds. to read that interview, please click here .

Just because something looks and trades like an ETF doesn't necessarily make it so.

Investors often confuse exchange-traded funds, or ETFs, and closed-end funds, or CEFs, especially when it comes to investing in a single country. Nevertheless, there are significant differences between the two, and experts recommend reading the fine print before jumping into a particular fund.

"Investors need to do the same degree of comparison shopping they would normally do when choosing between funds, which means digging into things like expense ratios, historical performance and holdings," says Lipper closed-end fund specialist Michael Porter.

Closed-end fund shares are listed on securities exchanges, are actively managed and trade intraday on the open market. They typically trade in relation to, but independent of, their underlying net asset values, or NAVs. That means that unlike open-end mutual funds, shares of closed-end funds can trade at premiums or discounts to their underlying NAVs, a feature that many investors find attractive.

"For long-term holders buying a fund at a discount, all distributions are more valuable than they would be if purchased for a full dollar on the dollar," says Richard Shaker, closed-end fund specialist at Shaker Financial. "For short-term traders, being able to buy when discounts are deeper and sell when they are less is also an advantage."

Conversely, traders can also short CEF shares they believe are trading at too great a premium. Premiums and discounts arise in closed-end funds due to swings in sentiment, shifts in perception of the fund's manager, historical performance and, of course, good old supply and demand.

For example, The Brazil Fund's (BZF) average discount to net asset value has been 16% over the past five years. Substantial price appreciation, however, has cut that discount practically in half. The fund is currently trading at $39.30, just an 8.5% discount.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
BZF $14.23 0.00%
EWP $34.99 0.00%
EWY $57.32 0.00%
GER $14.02 0.00%
IFN $27.84 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs