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In response to "My parents are looking at putting some of their retirement into some 'closed end funds' I think they are called? CLM and CRF specifically." by ty97

One of the clients I work on is a closed end fund. Overview inside. I will look into these two and get back to you shortly with more specifics. -- (edited)

Posted by znufrii Apr 29 '22, 12:20

Regular mutual funds (open-end funds) create and redeem shares at the fund’s daily net asset value, so there is no fixed number of shares.

Closed-end fund sell a fixed number of shares in an initial public offering, and do not redeem shares except through tender offers, and trade instead at market price on an exchange like regular stocks. This allows them to invest in less liquid securities without having to worry about having sufficient funds to meet redemption requests. The market price is also usually at a discount to the net asset value of the fund. Depending on the fund they may offer shareholders the opportunity to tender (sell back) their shares periodically. Rights offerings are the opposite, where they offer existing shareholders the right to purchase additional shares in the fund as a way of bringing money in.

Responses:

hmmm, interesting. -- nm - ty97 Apr 29, 12:21 13
- take a careful look at the fees associated with the funds - they can sometimes be higher than a similar open-ended fund -- nm - decline Apr 29, 12:23 12
  - Almost certainly. Apparently the dividends % is high though? I dunno -- nm - ty97 Apr 29, 12:28 11
    - I think so (we don't deal with CE funds). - decline Apr 29, 12:33
    - Most of their distributions are return of capital though, not dividends, which explains why they’re trying to raise more funds I guess. -- (edited) - znufrii Apr 29, 12:32 9
      - Out of curiosity, do you know if they’re reinvesting their distributions? -- nm - znufrii Apr 29, 12:43 4
        
        I don't know much at all. Dad wants to talk to me tomorrow about is plan (I think in part for me to sanity check his analysis) - ty97 Apr 29, 12:44 3
        
        I would make sure he realizes that most of the distribution is just getting his own money back, that he’s paying a sizable premium over NAV for the privilege -- (edited) - znufrii Apr 29, 13:04 2
        
        (imo it seems an overly complicated way to go about things) -- nm* - znufrii Apr 29, 13:15 1
        
        Also, note that the record date for the rights offering was April 18th, so if he bought after then he can’t participate. -- nm - znufrii Apr 29, 13:25
      - Could the premium be because people are buying in due to the rights offering? -- nm - ty97 Apr 29, 12:42 3
        
        Probably not, it’s been consistently high for the last year, but increasing more recently due to stocks going down looks like. - znufrii Apr 29, 12:48
        
        (As in: people are willing to pay above NAV to become an owner so they can take advantage of the rights offering to buy more? Would that make sense?) -- nm - ty97 Apr 29, 12:42 1
        
        The opposite, really, because the rights offering may put downward pressure on the premium by increasing the number of shares available. -- nm* - znufrii Apr 29, 12:50

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One of the clients I work on is a closed end fund. Overview inside. I will look into these two and get back to you shortly with more specifics. -- (edited)

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