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.
How would you like to get $1 worth of stocks for just 90 cents?
You can do that with some closed-end funds (CEF), a lesser known cousin to traditional mutual funds.
Closed-end funds are sort of a cross between traditional mutual funds and stocks. While both invest in underlying assets like stocks or real estate, traditional mutual funds' net asset values -- the price you pay for your shares -- always more or less equal the value of the fund's underlying holdings.
But closed-end funds trade more like stocks, and their share prices equal whatever amount investors are willing to pay. Shares sometimes go above or below the value of the underlying assets -- meaning you can sometimes buy $1 worth of stocks for, say, 90 cents.
But experts who participated in TheStreet's Why Closed-End Funds Could Deliver a Powerful Income Portfolio Boost webinar said you shouldn't rule in or rule out investing in CEFs based on whether they're trading at a discount or premium to NAV, net asset value.
In fact, the experts said a CEFs discount or premium is just one factor to consider when evaluating and selecting which CEFs to invest in. Others include the amount and percent of leverage a CEF uses and its investment objective.
"We think the premiums and discounts are really only part, and maybe a smaller part, in my opinion, of the approach that one should take toward closed-end funds," said Bill Meyers, senior managing director with Nuveen Investments, which sponsored the webinar.
"Funds trade above and below the net asset value. We look at the funds and the asset classes within the funds, however, as part of an overall portfolio allocation that investors should have."
So, if someone wants a certain fixed-income allocation, likes the strategy, likes the portfolio and maybe it's a discount that could a factor that they could consider. But, again, we look at the funds and their strategy and really a longer-term allocation for investors."