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Closed-end funds

Discovering value with discounted CEFs

Discovering value with discounted CEF's

Across many asset classes, current closed-end fund discounts appear wide relative to medium and long-term averages. This may present an opportunity for long-term investors. Closed-end funds purchased at discounts wider than their historical average have the potential to reward investors with a higher market distribution rate, as well as higher returns over time, should the discount narrow. Learn more below and   explore opportunities.

Why purchase discounted CEFs?

Many investors look to closed-end funds (CEFs) for portfolio diversification and the potential for higher income. CEFs feature structural advantages over many open-ended funds, including the ability to invest in less liquid corners of the market, stay more fully invested instead of holding aside cash or liquid investments to meet redemptions, as well as the capacity to use leverage with the goal of enhancing income and returns. An additional attractive feature of investing in CEFs is the ability to purchase shares at a discount to net asset value (NAV). In other fund structures, such as mutual funds or ETFs, shares are typically purchased at, or very close to, NAV.

Purchasing shares of a closed-end fund trading at a discount can be advantageous for a number of reasons. Shares purchased at a discount can potentially reward an investor with higher capital appreciation should the discount to NAV narrow over time. In addition, shares bought at a discount to NAV may have a higher distribution rate on market price, as each dollar invested receives earnings from more than a dollar’s worth of assets.

CEFs are currently trading at historically wide discounts

Closed-end funds frequently trade below, or occasionally above their NAV (Figure 1). While many theories try to explain this occurrence, closed-end fund market prices are largely determined by supply and demand. Discounts, or premiums, are the result of a number of factors such as market and investor sentiment, fund performance, as well as certain quantitative and qualitative factors relating to the fund. For example, distribution rates play a significant role in a fund’s relative valuation. Funds with an above average distribution rate may trade at a premium to the fund’s NAV and/or a narrower discount to the peer group. Conversely, funds with a lower distribution rate, or funds whose future earnings or distribution potential is limited or declining, may trade at a wider discount than similar funds.

Figure 1: CEF discounts over 20 past years

In weaker or more volatile markets, or at times of uncertainty, discounts can widen significantly. For example, closed-end fund discounts widened across the board over the course of 2022, against a backdrop of weaker equity and fixed income markets, elevated volatility, and concerns over higher leverage costs and their impact on fund distributions. Although discounts narrowed over the final few months of 2023, and have continued to narrow in 2024, many strategies’ discounts remain wider than their averages over longer periods (Figure 2). 

Figure 2: Current CEF discounts versus historical average across asset classes

How to evaluate discounted CEFs

Although wider average discounts among the asset classes above appear compelling and point to potential opportunities for higher income and total return over the longer term, discounts can vary significantly between funds in each asset class. In addition to considering absolute discounts, investors should examine an individual fund’s discount relative to its historical range, as a fund’s market price may not always revert to its NAV. A useful metric to help analyze relative value in closed-end funds is the z-score. 

The z-score measures the distance (in standard deviations) of the fund’s current discount from its average discount over a given time period. A negative z-score indicates the fund’s current discount (or premium) is lower than its average. Conversely, a positive z-score indicates the fund’s current discount (or premium) is higher than its average. The magnitude of the z-score is key. For example, a fund with a 1-year z-score of -2 indicates the fund is trading 2 standard deviations wider than its 1-year average discount. The more negative the z-score, the wider the fund is trading relative to its average over a given time frame. By measuring a fund’s relative value, the z-score can help add context to a fund’s current discount or premium. The table below shows the Nuveen closed-end funds with the lowest 1-year z-scores across national tax-exempt and taxable strategies, as of February 29, 2024.

Funds to consider
 Discount/Premium (%)  
Distribution Rate on Market Price1
Z-Score (1 Year)
Current 1 Year Average 52 Week Low 52 Week High
Municipal Fixed Income
NUV Nuveen Municipal Value Fund Investment Grade -7.55 -6.88 -9.54 -3.28 4.00 -0.52
NMCO Nuveen Municipal Credit Opportunities Fund High Yield -10.21 -7.98 -14.57 -0.26 5.21 -0.70
NMI Nuveen Municipal Income Fund High Yield -8.27 -5.84 -10.31 1.94 4.43 -0.95
NUW Nuveen  AMT-Free Municipal Value Fund Investment Grade -11.06 -9.74 -12.03 -6.62 3.73 -1.06
NIM Nuveen Select Maturities Municipal Fund Investment Grade -11.84 -9.52 -12.56 -4.47 3.52 -1.41
Taxable Fixed Income
JRI Nuveen Real Asset Income and Growth Fund Public Real Assets - Multi Asset -13.07 -14.61 -17.78 -11.40 10.49 1.24
JPC Nuveen Preferred & Income Opportunities Fund Preferreds & Income -9.49 -11.65 -15.70 -6.39 7.97 1.13
JMM Nuveen Multi-Market Income Fund MBS -7.76 -8.58 -10.89 -6.13 5.56 0.70
NMAI Nuveen Multi-Asset Income Fund Multi Asset -12.71 -13.62 -15.97 -8.99 13.23 0.57
JRS Nuveen Real Estate Income Fund REITs -10.57 -11.64 -16.53 -2.72 8.74 0.48

Although z-scores can be helpful in identifying attractive entry points for individual funds, there can be no guarantee of positive returns for investors, even if discounts move closer to their mean or indeed NAV. Ultimately, investors should take into account many factors when considering buying closed-end funds, such as risk tolerance, individual investment objectives and the outlook for the asset class in question. Z-scores can be useful in helping investors narrow down a selection of funds for further research, and should be used alongside other metrics in evaluating the merits of a particular closed-end fund. Investors can use, a website that houses a host of useful metrics related to all CEFs, to analyze 3-month, 6-month and 1-year z-scores.

To discover additional opportunities, explore all closed-end funds.

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1 Distribution Rates represent the latest declared regular distribution, annualized, relative to the most recent market price and NAV. Special distributions, including special capital gains distributions, are not included in the calculation. 

Closed-end fund historical distribution sources have included net investment income, realized gains, and return of capital. It is important to understand these sources, and also the fund’s distribution rate relative to its NAV performance. You should not draw any conclusions about a fund’s past or future investment performance from its current distribution rate.

Important information on risk

Past performance is no guarantee of future results. All investments carry a certain degree of risk, including the possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Certain products and services may not be available to all entities or persons. There is no guarantee that investment objectives will be achieved.

Closed-end funds frequently trade at a discount from net asset value (NAV). At any point in time, including when sold, shares may be worth more or less than the purchase price or the net asset value, even after considering the reinvestment of fund distributions. It is important to consider the objectives, risks, charges and expenses of any fund before investing.

Leverage typically magnifies the total return of a fund’s portfolio, whether that return is positive or negative, and creates an opportunity for increased common share net income as well as the possibility of  higher volatility for the fund's net asset value, market price, distributions and returns. There is no assurance that a fund’s leveraging strategy will be successful.

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