The average closed-end fund discount to net asset value is 9%, or double the 15 year average. That’s creating a great buying opportunity for yield-seeking investors, said Christian Magoon, CEO of Magoon Capital. ‘Certainly it’s a bit of a contrarian play, it’s fear about the Fed raising rates, that’s what it boils down to,’ said Magoon, adding that investors are concerned about the leveraged used in many fixed income closed-end funds. Closed-end funds are baskets of stocks that are grouped according to an investment objective and overseen by a manager. But unlike open-end funds, which continue to increase their asset base by selling to new shareholders, closed-end funds bring in assets by selling a fixed number of shares through an initial offering. After the initial sale, the closed-end fund’s shares trade like stocks on exchanges like the NYSE or the Nasdaq. Low demand for a fund can cause closed-end shares to trade at discounts to net asset value (NAV). High demand can create premiums to NAV. High closed-end fund discounts provide the potential for above average income as assets can be purchased for about 91 cents on the dollar today. High closed-end fund discounts relative to long term averages present an opportunity for capital appreciation should discounts revert to the mean. Magoon’s YieldShares High Income ETF (YYY) is an index tracking ETF that owns the top 30 overall ranked closed-end funds based on three categories: discount to NAV, income and liquidity.
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