Closed-End Fund Basics

Other Closed-End Fund Concepts

Performance - Fund performance is usually measured as a percentage price increase on share price, and as total return on share price including distributions. Funds also may present fund performance based on net asset value (NAV) level changes and total return on net asset value including distributions.

Net Asset Value and Market Price ­– Net asset value (NAV) is determined using the following formula:

When demand for fund shares exceeds supply, the market price at which a closed-end fund trades may increase to be higher than its underlying net asset value. When there are more fund sellers than buyers (supply exceeds demand), the market price may decline to be lower than its net asset value.  The market prices of closed-end fund shares are typically published daily in the financial listings of most newspapers and financial web sites.

Discount/Premium – Many closed-end funds trade at prices that differ from  their net asset values for a variety of fundamental and subjective reasons. For example, if the net asset value of a fund is $20, and the fund is selling on an exchange for $18, the fund's price is said to be at a 10% discount to net asset value. If the same fund is selling for $22, the fund's price is said to be at a 10% premium to its net asset value.

The factors that influence the up-down movement in a fund's share price are debated, but they include the fund's yield or distribution rate, portfolio performance, the demand for a popular strategy or manager, an overcrowded marketplace for that type of strategy or style, the use of a managed distribution program, high management fees, a sizable amount or lack of retained earnings or unrealized appreciation, and general market and economic conditions.