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Unlike open-end funds, closed-end funds trade on an exchange and may trade above or below net asset value (NAV).
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Currently, about 80% of closed-end funds trade at a discount, or below NAV.1
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Current valuations and distribution yields may present an opportunity for investors.
Over the years, some of our smarter clients would ask us a variation of the following question: “tell me what no one is asking you”. We often find interesting investment opportunities in areas of the market that are overlooked. We believe the closed-end fund market may present an opportunity for both capital appreciation and income.
Like open-end funds such as mutual funds, closed-end funds are organized to implement an investment strategy on behalf of shareholders. The difference between open-end funds and closed-end funds lies in how they are traded. Open-end funds trade at NAV and are “open”, meaning that new shares are created as new money comes into the fund. Closed-end funds, on the other hand, are offered through an initial public offering (IPO), and then those shares trade on an exchange. As such, closed-end fund share prices may trade at levels above or below net asset value, referred to as a premium or discount. There are several reasons these vehicles may trade at a level different than NAV; it could be due to performance issues, distribution policies, complexity of the underlying asset class, etc.
The average closed-end fund, over time, has tended to trade at a discount to its NAV, as can be seen in the chart below. On average over the past ten years through March 2025, funds have traded at just over a 7% discount.
In recent years, some activist investors have taken positions in closed-end funds trading at a discount to attempt to influence fund boards to take action to reduce the discount. On average, however, discounts have been range-bound between 4% and 10% for most of the period.
Another key component is the distribution yield, which in closed-end funds can consist of investment income, capital gains and return of capital. Many closed-end funds pursue what’s called a managed distribution policy, the goal of which is to provide a consistent, regular distribution. The chart below tracks the average distribution over the past 10 years. There was a significant spike in distribution rates in early 2020 as markets were dislocated during the onset of COVID-19, but in general, average distributions have tended to peak at its current level of around 9%.
It should be noted that the number of traditional closed-end funds has been shrinking over the years. From close to 500 funds in 2020, the number has since shrunk to fewer than 400 at the end of 2024.2
With most closed-end funds trading at a discount and distribution yields near historic levels, certain funds may offer investors an attractive opportunity to generate income.
Important Disclosures & Definitions
1 Source: Morningstar, as of 03/31/2025
2 Independent Directors Council. (April 28, 2025). A Guide to Closed End Funds. Independent Directors Council [Brochure].
Net Asset Value (NAV): the per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
AAI000958 06/24/2026
