We have many ties to open-ended funds , which are funds that we typically buy and sell across the fund’s various sales channels.
Closed-end funds include funds that announce periodic closings and openings. After the closed-end fund is raised, it will no longer accept transactions from investors.
In other words, the share of a closed-end fund is fixed. If investors want to sell, what should they do? So I thought of a way to allow closed-end funds to trade in the secondary market. In other words, the stock remains unchanged, allowing investors to buy and sell, with the same trading methods and rules as stocks.
Because this is a stock-like trading rule, the price is determined by buyers and sellers in the market. This results in a certain deviation between the exchange-traded price and the NAV of the fund .
Contrary to the design of the closed ground floor trade, the closed base cannot be sold under normal circumstances. If you want to sell something, you have to switch to something “cheaper” on the floor. This will result in a trading price below the fund’s NAV , resulting in a “discount”.
Similarly, if this cover is popular but cannot be bought during the closed period, it can only be bought at a premium from other investors. This results in a “premium” when it trades above the fund’s NAV.
“Discount” to buy funds is to use “discount” to carry out arbitrage. In the closure base, the final return of closed-end funds includes two parts: the rise of the fund’s net value and the return of the lowest discount. It is not difficult to understand that the NAV of the fund is rising. After buying the fund , the fund goes up; of course, it goes down.
Lower limit discount return: The funds we purchased at the lower limit can also be redeemed according to the net value after the closing base expires. Therefore, the closer the base closure is to the maturity date, the closer the market price is to the fund’s net value. Therefore, when the discount on the lower limit of the closing base is larger, purchasing the fund is equivalent to a “discount”.
Will buying a cap base make money? Not always. From the perspective of income composition, if the net value declines from the purchase to the end of the fund closing period, it cannot make up for the income brought by the discounted income, and for the closed-end fund, in addition to the discount arbitrage, it will lose money. While closed-end funds are closed, there are other advantages, although they can be traded on the floor, their shares remain the same, which basically does not affect the operation of the fund manager . In other words, investor redemptions have no effect on fund managers
Closed-end funds have mandatory dividend requirements. Within one year, more than 90% of the net income realized by the closed-end fund must be used for dividends, and dividends shall not be distributed less than once a year.
Closed-end funds adopt stock trading rules, and the actual handling fee is lower. Commissions are only around 0.25% (slightly different with each brokerage), prices start at $5, and there are no redemption fees. Provided, of course, that you have a stock account.
From a return composition perspective, we focus on two metrics: the manager’s ability to manage and the discount rate.
The management ability of the fund manager determines the rise and fall of the net value of the fund; a better reference index for the discount rate is the “annualized discount rate”. The higher the discount rate, the better. Of course, you can also refer to the discount rate and maturity year. The reasons are similar.
At the same time, as a closed-end fund, liquidity is also an important concern. This liquidity means that when you are trading in the market, you can have smooth sell orders. Otherwise, you cannot buy or sell at price without a market. Funds with large scale and high value have better liquidity.