First Trust Targets Another Closed-End Fund

First Trust Advisors is targeting another closed-end fund for conversion into an exchange-traded fund.

The board of directors of the $290 million (FVL)First Trust Value Line 100 (FVL) said earlier this month that it voted to transfer the fund's assets into, and assign its liabilities to, a newly created ETF.

The board didn't provide a reason for the conversion, which is subject to shareholder approval. But the transaction would help eliminate the discount in the fund's share price to its net asset value per share.

The fund's discount has already narrowed in anticipation of a conversion to 2.52% of net asset value as of Friday, compared with 7.38% at the end of January, according to ETFConnect.com.

Unlike open-end funds, which continuously issue and redeem shares at their net asset value, closed-end funds issue a fixed number of shares that are traded throughout the day on an exchange, like stocks. So the share price of a closed-end fund with an NAV of $100 per share can fall to, say, $90, or a 10% discount, if demand falls off. The reverse can occur when strong demand for the fund pushes its price up to a premium over its NAV.

Exchange-traded funds, which are baskets of stocks that trade on an exchange, rarely trade too far out of line with their net asset value, because their sponsors buy the stocks necessary to create new shares as needed. They can also break ETF units into their component stocks and sell them.