More Bargains in Closed-End Equity Funds

Bargains in closed-end equity funds are becoming easier to find as investors become more concerned about lofty valuations in the stock market.

The median discount on closed-end equity funds widened by 33 basis points in May to 3.35%, according to Lipper. It was the second consecutive month of widening and occurred as the S&P 500 moved up 3.49% to close the month at an all-time high of 1,530.23.

Unlike open-end funds, which issue and redeem shares upon request at their net asset value, closed-end funds issue a fixed number of shares that trade on an exchange like stocks. Thus, share prices get bid up above net asset values when an investment style is in vogue, forcing investors to pay a premium. On the other hand, when the market sours on a fund, its share price can fall below net asset value, allowing investors to pick it up at discount. ...