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Hot Yields Drive Rebirth of Closed-End Funds

One of the biggest drawbacks of closed-end funds, their tendency to trade at a discount to NAV, is also improving. On May 31, the median discount for all closed-end funds was 1.81% -- a dramatic drop from a discount of 6.24% a year ago, according to Lipper.

Margolin says 38% of all closed-end funds are now trading at a premium to NAV, compared with a historical trend of between 10% to 15%.

"I think people are hungry for yield," says Anne Kritzmire, managing director of closed-end funds at Nuveen Investment, the largest provider of closed-end funds, with 118 funds and $53 billion in assets under management. She attributes a lot of the recent success to the ability of funds to "use leverage to pack in some gains."

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