NEW YORK (TheStreet) -- Aberdeen Asset Management's (AND) stock has had a bleak year so far, but its closed-end funds that let investors tap markets such as Israel and Japan are delivering impressive returns.
Closed-end funds are essentially pooled investments, just like mutual funds, except closed-end shares are issued through initial public offerings and trade on exchanges. Investors typically count on the funds for reliable cash flow, given the lower risk of share redemptions when markets hit turbulence.
Aberdeen's principal advantage may be diversification, allowing typical retail investors a way to counterbalance a stock portfolio that's too heavily weighted toward U.S. markets, especially if they see emerging markets as positioned to jump.
"In the closed-end-fund wrapper, you tend to see the same leverage that's employed in fixed income funds, and so you're increasing the yield available," said Rennie McConnochie, business development manager at Aberdeen. "It can work in two ways: increasing yields in good markets and decreasing the returns in bad markets, but you generally will see a higher yield than your typical mutual funds."
Another advantage is that "closed-ends won't force you to sell assets during redemptions," he said. "Funds tends to be 100% invested because you don't need a cash buffer to meet redemptions."
As for Israel, investors "wrongly believe that geopolitical insecurity in the region means a tough time for markets and Israeli companies," William Scholes, an Aberdeen investment manager said in a company video post.