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Exploiting Market Inefficiency In Closed-End Funds

Exploiting Market Inefficiency In Closed-End Funds

One of the clichés bandied about regarding closed-end funds is that they are the least efficient of investment vehicles. This should be obvious from the fact that the vast majority sell at discounts to their net asset values. By any reasonable interpretation of an efficient market, CEFs should always be selling at or near their NAVs. But such is certainly not the case. A quick look at the universe of 567 funds listed on cefconnect.com shows that 86.4% of them sell at a discount, with the median discount at -8.33%.

To illustrate the point, I worked up this chart, showing the P/D distribution for all 567 funds. It illustrates just how contrary to an assumption of market efficiency the closed-end fund universe is.

Premiums range from PIMCO Global Stocks Plus (PGP) and PIMCO High Income Fund (PHK) two fixed-income PIMCO funds at the high… Read More …