This is especially true when the NAV drops suddenly and sharply. In such cases, the CEF tends to trade at a premium for some time, possibly because investors expect a market rebound and are reluctant to sell. Investors of CEFs that trade at large discounts naturally would like the fund management to do something to reduce the discounts. Through the years, funds have tried several alternatives with mixed results. Many of the domestic funds have policies of paying handsome dividends to attract investors, and thereby reduce discounts.
Some funds authorize their managers to buy back shares of the funds.
Some funds are fortunate to trade at premiums, a few at hefty premiums. Except in the case where premiums are earned through outstanding performance, such premiums rarely last. At the worst, Wall Street folks, ever ready to make a quick buck, will offer ever more funds to the public until their demand is sated. Copyright 1995, 1996. The Internet Closed-End Fund Investor.