Few Bargains in Closed-End Funds

For the 12-month period ending Jan. 31, the median closed-end fund discounts narrowed by 4.58 percentage points.

Simply put, a $9 investment in a fund trading at a 10% discount purchases $10 worth of securities. The bigger the discount, the bigger the bargain. But there are few real bargains left, particularly in closed-end bond funds "In many cases you have to go back five or 10 years" to see discounts this narrow, says Tom Roseen, a senior research analyst at Lipper.

The median discount on closed-end bond funds narrowed by 1.56 percentage points in January to 2.57%. The national municipal bond funds category experienced the greatest narrowing during the month, closing in by 1.87 percentage points to 2.82%, its lowest mark since March 1999. Funds that invest in high-yield municipal debt, which were the only ones in the muni sector to post positive returns in January, sported the smallest discounts, a meager 0.71%.

"Whether it's in REITs or bond funds," Roseen said, the narrow discounts suggest that, above all, "people are still looking for yield, and still looking for capital appreciation."

The median discount on closed-end equity funds actually widened by 1.41 percentage points in January to 3.42% after hitting a five-year low in December. The trend was most evident in world equity funds, where the median discount widened by 1.78 percentage points to 4.46%.

January saw narrower discounts or wider premiums for 58% of all closed-end funds tracked by Lipper, including 72% of fixed-income funds and 31% of equity funds.