Closed-End Funds Slump Amid ETF Surge
"ETFs are primarily equity-oriented, while the average closed-end fund buyer is looking for income," says Mariana Bush, CEF analyst at Wachovia Securities.
Bush and others point out that there are only a handful of fixed income ETFs, compared with 457 bond CEFs at last count. And of the 178 equity CEFs, many use covered calls or leverage to increase yields, neither of which is available in an ETF.
Bush attributes part of the October selloff to investors unfamiliar with the CEF structure who sold when the market turned too quickly for them.
"There have been a lot of closed-end fund IPOs this year and their high yields have been catching peoples attention," says Bush. "But not all the buyers should have been in CEFs because they don't understand the risks associated with leverage."Yield is not the only thing investors can't get from an ETF, says Greg Drake, managing director at Claymore Securities, a firm which oversees CEF assets of $12.5 billion. Drake says the typical CEF buyer is looking for active management, another property index-based ETFs can not offer. "Every structure has its day," says Drake. "Passive investing is popular now, however, if the S&P Index maintains its trading range for much longer, then people will be looking for active management again." To view a video take of Gregg Greenberg's mutual fund report, click here.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV