NEW YORK (TheStreet) - Mutual fund investors often make the mistake of ignoring closed-end funds because they're small. However, some closed-end funds now sell at intriguing discounts to the value of their assets.
"It makes sense to buy a closed-end fund at a discount instead of taking a comparable open-end mutual fund," says Mariana Bush, a closed-end analyst for Wells Fargo (WFC).
Some managers of conventional mutual funds also run closed-end funds. Among the top performers who oversee both kinds of funds are Ron Baron, Mario Gabelli and Bill Gross.
To appreciate the appeal of closed-ends, consider the record of Jeffrey Gundlach, who manages one of the top-performing bond mutual funds, the TCW Total Return Bond Fund (TGLMX). During the past five years, the fund has returned 7.1% annually, outdoing 99% of its intermediate-term competitors, according to Morningstar (MORN).Gundlach also runs the TCW Strategic Income Fund (TSI), a closed-end that has returned 8% annually during the past five years and sells for a discount of 2.5% to its net assets. "The closed-end fund gives you a unique opportunity to invest in a top manager who has been able to steer away from problems in the mortgage markets," says Patrick Galley, portfolio manager of RiverNorth Core Opportunity Fund (RNCOX), an open-end fund that invests in closed-end funds. Like conventional mutual funds, closed-end funds invest in portfolios of stocks and bonds. Trading on stock exchanges, shares of closed-end funds can sometimes swing wildly, moving from discounts to premiums. This is very different from conventional mutual funds, which tend to be more stable because they always trade at the value of their net assets.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV