Retirement & Financial Planning Report

Closed-end funds, which trade like stocks, often sell at a discount or premium to the shares they hold. Last fall, when financial markets were in turmoil, investors dumped closed-end funds. On average, closed-end funds dropped to a record 26% discount from their net asset value price: investors could buy $1 worth of stocks or bonds for 74 cents.

Since then, closed-end discounts have narrowed to around 5%. Therefore, it is harder to find real bargains now. However, some closed-end funds still sell for 15% or more below net asset value. You can get current information at websites such as www.site-by-site.com/usa/cef/cef.htm.

One tactic is to track closed-end funds that appeal to you. If the discount range has been from 5% to 20%, say, you wait to buy until the discount tops 15%. Then you’ll have two opportunities for profits: the underlying stocks or bonds might appreciate and the wide discount might narrow.

Why bother with closed-end funds? They don’t have to deal with redemptions, as mutual funds do. Mutual funds have huge inflows at market tops and outflows during bear markets so they’re buying high (with new money) and selling low (to meet redemptions). Closed-end funds issue a fixed number of shares for public trading so they don’t get whipsawed in this manner.