Understanding Closed-End Funds

Closed-end funds are registered investment companies that offer a unique structure compared to open-ended mutual funds and ETFs. They are created through an initial public offering (IPO) and have a fixed number of shares that trade on secondary markets, which distinguishes them from funds that allow continual trading based on daily inflows and outflows. Closed-end funds often utilize leverage to enhance yield, making them attractive for retail investors seeking above-average income. Notably, while their shares can trade at a discount to their net asset value (NAV), this discrepancy presents potential investment opportunities as the market price may not reflect the true value of the underlying assets.