A Closed-End ETF (CEF) is a publicly traded investment company that invests in a variety of securities such as stocks and bonds. Capital is mainly raised through an initial public offering and the proceeds are invested according to the fund investment objectives. The name “closed” refers to the fact that, once the capital is raised, there are no more shares available from the fund sponsor, and the issuance of new shares is “closed” to investors. Like a traditional mutual fund, a Closed-End ETF has a board of directors elected by the shareholders, and the board appoints an investment advisor and a portfolio manager.

Each Closed-End ETF is listed on a national exchange, where its shares are purchased and sold in transactions with other investors, not with the Closed-End ETF itself. When an investor wishes to purchase or sell shares of a Closed-End ETF, the investor purchases shares on an exchange such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), or the NASDAQ. The purchase price is determined by market demand and supply, not the fund’s net asset value (NAV). Although the outstanding shares of a Closed-End ETF remain relatively constant, additional shares can be created through secondary offerings, rights offerings or the issuance of shares for dividend reinvestment.

This is different from traditional open-end mutual funds, which issue and redeem shares directly with investors at net asset value. An open-end mutual fund creates new shares every time that an investor invests in the fund, and redeems the shares when an investor redeems the fund shares. Therefore, the number of shares and the total assets fluctuate in an open-end fund due to purchases and redemptions.

• Market Pricing - Investors who wish to buy or sell fund shares do not purchase or redeem directly from the fund - rather, they buy or sell fund shares on the stock exchange in a process identical to the purchase or sale of any other listed stock. All the strategies associated with stocks, such as market orders, limit orders, stop orders, short sales, and margin buying can be used in the purchase and sale of Closed-End ETFs.
• Trading Liquidity and Flexibility - A stock market listing means that Closed-End ETF shares may be bought or sold at any time during the trading day, and the price is updated throughout the trading day, not just at the close. Like other investments, share prices will fluctuate with the market and may be worth more or less at the time of sale than the original purchase price.
• Efficient Portfolio Management - The asset base for Closed-End ETFs is relatively stable. Without the pressure of constantly investing or redeeming securities based on investor demands, Closed-End ETFs may be able to take better advantage of longer-term and less liquid securities or markets.
• Leverage - Closed-End ETFs often borrow capital or issue preferred shares in order to leverage their portfolios. As long as the short-term interest rates paid to the preferred shareholders are lower than the net long-term rates earned by the underlying fund's portfolio, the common shareholders of the fund will earn higher rates that they would have without a preferred share class. If the short-term rates paid to the preferred shareholders approach the return earned by the funds portfolio, the beneficial affects of leverage will be reduced and the amount available to common shareholders will decline. At the same time, the net asset value per common share will be more volatile than those of comparable unleveraged funds since the increases or decreases in the total portfolio value are all attributed to the common shares.
• Expenses - Due to the minimal marketing expenses (recall that Closed-End ETFs have fixed shares and assets, so there is minimal need for marketing and distribution costs) and typically lower turnover, Closed-End ETFs tend to have relatively low operating costs. However, investors must still pay a brokerage commission to purchase and sell shares for all Closed-End ETFs. For those investors who trade frequently, this can significantly increase the cost of investing in Closed-End ETFs. This means Closed-End ETFs may have lower expense internally, but an investor’s total costs may not be lower.
• Trading Fees - Because Closed-End ETFs are purchased and sold just like regular stocks, only brokerage fees are paid to purchase or sell shares. Closed-End ETFs typically do not impose annual 12b-1 fees.
• Minimums - Because Closed-End ETFs trade on secondary markets like other stock, there is no minimum purchase or sale requirement. Investors may purchase or sell as little as one share of a Closed-End ETF.
• Distributions - Closed-End ETFs make distributions according to a prescribed schedule – typically monthly or quarterly -- which allows investors to plan the timing of this income. Of course, the actual amount of the distributions may vary with fund performance and market conditions.

• Pricing Risk - The market price for a Closed-End ETF is based on the forces of supply and demand. Many Closed-End ETFs trade at a discount or premium to their underlying net asset value.
• Market Risk - Market prices for securities and Closed-End ETFs fluctuate daily based on many factors, such as economic conditions and global events, investor sentiment and security-specific factors. The degree of market volatility in general has increased over the last several years. The prospect of a market decline and its impact on security and fund prices should be considered as general market risk.
• Credit Risk - Credit risk refers to an issuer's ability to make payments of principal and interest when due. For fixed-income Closed-End ETFs, an interruption in the timely payment of principal and interest (such as on a corporate bond) may adversely affect a fund's net asset value, price and ability to pay dividends.
• Interest Rate Risk - Prices of bonds tend to fall as interest rates rise, and rise as interest rates fall (bonds with longer maturities tend to fluctuate more in price in response to such changes). For Closed-End ETFs that hold bonds in their portfolios, this risk can be significant, although most funds hedge this risk through various market instruments.

• Advantages
• Investment Risk
• Dividends and Distributions
• Buying and Selling
• Net Asset Value and Market Price
• Performance
• Discount/Premium

• Fixed Income Funds
• Equity Funds
• Other Funds