If someone offered to sell you a dollar for 90 cents ...
well, you'd probably think it was too good to be true. Yet these are exactly the kinds of opportunities that arise in the market's best closed-end funds (CEFs). CEFs are a type of investment fund, and in fact, they are older than mutual funds .
The very first closed-end fund was launched in 1893 – more than 30 years before the first traditional mutual funds (like those you might find in your 401(k) plan) were created. As with their mutual fund cousins, CEFs are pooled investment vehicles that hold portfolios of stocks, bonds or other assets. But that's where the similarities stop.
Mutual funds are open-ended. When you want to invest, you or your broker sends cash to the fund, and the manager takes that fresh cash and uses it to buy assets. When you want to sell, the manager will sell a small amount of assets to cash you out.
Money is always coming and going, and there's no hypothetical limit to the amount of new money a popular fund can take in and invest. Closed-end funds are different. CEFs have initial public offerings ( IPOs ) like stocks, and there is a fixed number of shares that then trade on the stock market.
If you want to buy shares, you buy them the same way you'd buy a stock. And here's where the fun starts. CEF prices are set by the market the same way a share of Apple ( AAPL ) or Amazon.
com ( AMZN ) would be, but that price can vary wildly from the value of the assets the fund holds. It's not uncommon to.