Understanding Closed-End Funds

Closed-end funds are investment vehicles where a group of investors pools their money for professional management in a portfolio that includes stocks, bonds, and other securities. Unlike open-end mutual funds, closed-end funds have a fixed number of shares that trade on exchanges throughout the day, leading to potential discrepancies between market prices and net asset values. With around 400 closed-end funds in the U.S., these funds are generally smaller than the more common open-end mutual funds and ETFs, which often leads to their declining popularity. Key characteristics of closed-end funds include their focus on income generation, often utilizing leverage to enhance returns, and their structured, yet less liquid trading processes compared to other investment options.