Talking Closed-End Discounts With Richard Shaker

How is the growing popularity of ETFs affecting the closed-end fund business?

I believe, in a subtle way, it is encouraging managers to liquidate closed-end funds, and lessening the number of new closed-end funds. Closed-end funds are an old-fashioned vehicle, but it's a game well worth playing, even if some people say it's in the eighth inning.

Why are people saying the game is almost over?

There is a recent, interesting development that shows that closed-end funds may be entering the ninth inning of play. A number of the older, larger closed end funds, Salomon Brothers Fund(SBF), Adams Express(ADX) and Tri-Continental have been long considered immune from the activists because of their size.

However, a number of activists have recently been taking advantage of the need for Legg Mason(LM) to get a positive vote from shareholders to transfer the management contract from Citigroup(C), have begun pressuring the first of these funds to enhance shareholder value. Success by these activists could encourage other activists, Carl Icahn wannabees, and hedge funds with lots of money looking for things to do, to set their sights on all these funds. But remember, in this game, the end can be very profitable, even for small investors who choose to shadow the big fish.

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