Closed-End Fund Is Reopening as an ETF
Tom Rzepski, vice president of the American Stock Exchange's ETF marketplace, points out that the problem was not the fund's performance but that investors weren't getting the actual value of the underlying securities. (The Amex will calculate the value of the index on which the new ETF is based.)
Value Line Dividend, which invests in stocks with above-average dividends that also have potential for capital appreciation, returned 36.8% for the year to date through Wednesday, compared with a 21.5% return for the S&P 500, according to Morningstar. Over the past three years, the fund returned an annualized 19.8%, compared with 8.17% for its benchmark.
Converting into an ETF isn't the only way for closed-end funds to reduce or eliminate discounts. Some funds have conducted share buybacks, while others have been converted to open-end funds. (Another First Trust closed-end fund, First Trust/Value Line & Ibbotson Equity Allocation, was recently liquidated after a proposal to convert it into an ETF failed to attract sufficient support. First Trust subsequently launched an ETF with a similar strategy.)
There are certainly benefits to going to ETF conversion route. For one thing, it preserves shareholders' ability to trade throughout the day, whereas mutual funds price just once a day, at 4 p.m. And because ETFs are based on indices, they are more transparent than open-end funds, which may disclose their holdings just once a quarter. "The big thing is we were able to accomplish something that maintains the strategy
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 Plus 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