What keeps Close-ended-funds NAV in line with the share price?

Discussion in 'ETFs' started by Spaghetti Code, Jan 5, 2021.

  1. Without the presence of authorized participants arbing the price between NAV and the price, how can CEFs have value? It seems like they would be always off from their true value.
  2. newwurldmn


    They normally trade at a discount because of the lack of arbitraguers
  3. I guess my question is why would someone buy into a CEF when there is a high chance it won't achieve its objective?
  4. newwurldmn


    sometimes they do things you can’t easily do. For example they were some call overwrite funds that I had invested in back when I was an institutional trader snd had compliance issues with trading my PA.

    but I can’t think of another good reason and that’s why they aren’t so prevalent.
  5. Daal


    Dividends (when they are present), the chance that a fund will lots of shares and close the arb, the chance the CEF will liquidate
  6. Cabin111


    Many CEFs will buy back shares, depending how much cash they have on hand and the NAV situation.
  7. treeman


    Vanguard makes a ton of money on giving brokerages access to shorting their funds.
  8. What does that have to do with CEFs?
  9. Sig


    To answer the OPs question, nothing unless the fund has a mechanism to create and redeem shares. There was a time in the 90s after several of the asian "tiger" economies melted down that closed end funds in their markets trades at premiums of 50%+ for literally several years. In fact, at that time before ETFs came along with their creation and redemption features, it was a popular strategy for hedge funds to buy up funds that traded at a persistent discount and then force them to liquidate in order to realize the value that was locked in.

    Now it's pretty trivial to do a no-risk arb if the value goes out of whack by even a little bit. The creation units aren't even really that large, in most cases a larger retail trader could do the arb. In reality, they're done by automated systems by the funds with the lowest transaction cost.
  10. Cabin111


    It happened this year to the Royce Family of Funds. RVT, RMT, RGT...I must have got 5 proxies (and 2 or 3 phone calls) each because of those stupid corporate raiders!! They hurt the value of the funds by having to defend their investment style. The funds are then unable to reinvest in opportunities that may arise in the markets. RGT usually would pay out 3-5 cents each year, at the end of the year. They would find value around the world and reinvest. Not this year...Did a pay out of $1.19 in December. They had delayed annual meetings and tons of $$ for the control of the funds. Really unfair to the investors. Same thing happened to PEO, that I own. Some raider named Bull Dog went after them. Buy, if you like their investment style...Sell, if you don't. But this should not be allowed to happen!! The paperwork hurt the shareholder's value...
    #10     Jan 11, 2021