Closed End Funds

[Philadelphia Eagle]

What are your views on CEFs?

They are increasingly used as an income suppliment and, for that purpose, have the great advantage of a steady income stream as their dividend is unaffected by the underlying value of the fund itself.

One of my favorites is the Van Kampen Muni Fund ll which, as it invests in municipal bonds, is exempt from Federal taxation (but not State).

Based on the current market value of the share the Fund yields 6.9%.

There are others with similarly good yields and dividend track records and CEFs are, it seems, becoming an important part of an income producing portfolio.

[john8pies]

Sorry, but best to admit I`m ignorant...just what does CEF stand for? Thanks

[Lon]

I am not a big fan of most funds unless they are with "Vanguard" because of their very low expenses. I have been able to do a bit better than most CEF's with my Ameritrade account and VfIIX, VGHCX, VWIAX. Being retired, I take a bit of a different position than those working.

[Philadelphia Eagle]

john8pies wrote: Sorry, but best to admit I`m ignorant...just what does CEF stand for? Thanks


John - CEF = Closed End Fund.

It's basically a Mutual Fund but unlike a regular Mutual Fund a CEF trades like a normal stock and is bought and sold on the stock exchanges on an ongoing basis whereas a Mutual Fund declares its price only once per day - usually at the end of the trading session.

[Philadelphia Eagle]

Lon wrote: I am not a big fan of most funds unless they are with "Vanguard" because of their very low expenses. I have been able to do a bit better than most CEF's with my Ameritrade account and VfIIX, VGHCX, VWIAX. Being retired, I take a bit of a different position than those working.


I'm also a Vanguard fan. They have an excellent ER and track record.

Currently I own VWEHX, VFIIX and VBMFX.

I rebalance usually once per year and find that the current Vanguard funds I own fit my objectives reasonably well.

What's your view on VWEHX? (I'm a self-confessed yield chaser!)

[john8pies]

Thanks for the explanation, Eagle - so what would be the pros and cons then? Aren`t they both `liable to go up or down in value` as the adverts always warn us over here?

[gmc]

Careful of the terminology

Closed end Fund, UK equivalent Investment Trust.

Mutual Fund, this is the US equivalent of our unit trusts or OEIC'S.

In the UK a mutual fund is typically a traditional with profits fund. It gets confusing sometimes.

[Philadelphia Eagle]

john8pies wrote: Thanks for the explanation, Eagle - so what would be the pros and cons then? Aren`t they both `liable to go up or down in value` as the adverts always warn us over here?


Yes - they can and do rise and fall in capital value with the demand cycle in the markets.

CEFs are normally purchased for their steady income stream rather than profit opportunities afforded by an increase in their capital value and, as such, their attraction lies in the fact that their declared dividend (or income) does not fluctuate with their underlying value as it would with a traditional open ended fund.

GMC is correct to point out that there may be differences in terminology between the US and UK markets and so my remarks may not be relevant in a UK enviornment.

The thread is really designed more for US investors to comment upon but no reason why you shouldn't participate if you're aware of the possible differences in description of the types of fund available and indeed a take on the situation as viewed from a UK perspective would be interesting.

For example, you'll see that conversations between US investors usually refer to one or more 3,4 or 5-letter 'ticker' symbols.

These symbols are widely understood here but may be entirely different in UK.