Closed-End Funds Offer the Best Bargains

There are some very shrewd people who think the markets, and the U.S. economy, are in trouble. The milk bottle is certainly wobbling. If it tips over, be ready. That's when you get to lap it up.

It may not happen. We're not there yet.

Closed-end funds are a great place to look because in any kind of market rout you can end up getting a double discount. That's like going to Filene's Basement and getting an extra saving at the till.

What are closed-end funds? They are regulated, professionally-managed investment vehicles -- like mutual funds, but with one big difference. Whereas an ordinary mutual fund issues new units whenever people invest more money, closed-end funds issue a set number of units, usually when they are first set up, and that's it. People who want to put money in or take it out buy and sell the fund's shares, as they would shares in a company, on the stock market.

Closed-end funds come in a wide variety. Some invest in U.S. blue chips. Some invest in bonds. Others invest in emerging markets. The special quirk of closed-end funds is that the price of the share you buy or sell in the market may not actually correspond with the value of the investments the fund holds. If lots of people want to get out of the fund at the same time, the share price can drop well below the fund's intrinsic value. You can often buy a share for 90 cents that gives you the claim on $1 worth of investments.

Which is what can happen in a panic.