The Current Market Closed-end bond fund investors have suffered since the early months of 1999 because of increasing interest rates and inflationary concerns. A perhaps even greater bond-market depressant has been the simple fact that investors have grown tired of enduring such dismal returns relative to stocks particularly those in the technology arena. When bonds are out of favor, closed-end bond funds fall to deeper discounts, adversely impacting owners but eventually making the funds better buys. 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.