Closed-end funds can use leverage. Leverage is an investment strategy of using borrowed money to hopefully increase the return of the investment.
But "it needs to be understood that leverage magnifies gains and losses. That's a B-School 101 concept. That's very important to understand when you're talking about closed-end funds. In a rising market, terrific. You're making money if you are levered long and things are going up," said Daniel Silver, Portfolio Manager for Zoso Capital.
But if things are not going well, your losses can be even bigger.
Although not as highly publicized or as well known as ETFs, closed-end funds have long been valued by advisors and investors as a tool for potentially boosting investment income.
- 60 Seconds: What Is a Closed-End Fund?
- Should You Only Buy Closed-End Funds Trading at a Discount?
- How Closed-End Funds Can Play a Role in Your Portfolio
With market yield still low and volatility returning this year, now maybe a particularly opportune time to consider adding closed-end funds to your portfolio and your clients' portfolios.
Want to Buy $1 Worth of Stock for 90 Cents or Less? You can with certain so-called "closed-end" mutual funds - an often overlooked investment class. Click here to register for a free online video in which TheStreet's retirement expert Robert Powell and an all-star panel tell you all you need to know. The webinar is sponsored by Nuveen.