In fact, only in the late 1970s and early 1980s did discounts dip as steeply as those prevailing in 1999. In addition, there is an opportunity for a stock market profit if the discount narrows or disappears. Investors have a trading advantage. A closed-end fund s share price often fluctuates more than its net asset value. Using limit orders, you can nail down more favorable prices by buying when markets are temporarily weak and by selling on strength.
Costs of operation are lower because managers work with a stable pool of capital.
Ongoing expenses associated with distributing new shares and meeting cash redemptions are avoided. A fund s stable pool of capital also allows managers to leverage up their yields. Leverage can enhance returns but adds risk. Information is not as readily available and greater sophistication is needed to be able to tell whether you are getting value or gimmicks. In addition, more patience and discipline are essential because fluctuating discounts and premiums often coupled with leverage may lead to greater price volatility.