A Few More Bargains in Closed-End Funds

A June swoon means there are a few more bargains to be found in closed-end funds.

The median discount on all closed-end funds covered by Lipper widened in June for the first time in four months. The change was significant, a 221 basis point widening to push the median to 4.02% -- the largest monthly discount since November 2006.

At month's end, 75% of all closed-end funds were trading at a discount to net asset value, with just 25% trading at a premium.

Unlike open-end funds, which issue and redeem shares upon request based on their NAV, closed-end funds issue a finite number of shares that trade on an exchange like a stock. Investors can bid up a popular fund to a share price higher than the underlying net asset value. Conversely, when a fund has fallen out of favor, its price can dip below the NAV.

Last month, investors seemed spooked by poor performance. Equity closed-end funds posted a negative 1.52% return, while only 10% of all fixed income closed-end funds had positive NAV growth.

Tom Roseen, a senior research analyst at Lipper, says inflation concerns, higher energy prices and even the problems affecting some parts of the hedge fund industry all contributed to the declines.