DU investors: What does it mean if an ETF is a "closed fund"?

[Mike03]

I know I should probably know what this means, but I have been reading the literature and have not found an answer.

Thanks in advance for any answers.

[A HERETIC I AM]

1. Closed means the number of available shares have been issued and no more will be created

An "Open End" Fund - Mutual Funds - are able to create new shares each time an investor buys them (unless the fund managers decide to close them to new investors). Thats why you have to receive a prospectus when you buy Mutual Funds because each new share is essentially a new issue.

You buy ETF's from the market. You buy shares of a Mutual Fund from the issuer directly.

[Mike03]

2. Darn, that is what I was thinking.

So closed end funds are for all intents and purposes not investible.

Damn...

But thank you! I appreciate knowing. There were some Taiwan funds that look really attractive but they were closed end.

[pscot]

3. Why would they not be investible

All it takes is a willing seller and a willing buyer. If it's trading on an exchange you can buy it.

[A HERETIC I AM]

4. No, no!....there is a significant difference between a Closed End Fund and an Open End fund...

They are both investable.

Both Closed End & Open End funds are essentially a portfolio of stocks and/or bonds designed to attain a specific goal. It might be strictly growth of principal, it might be growth and income, income and growth (the income idea takes precedence) or strictly income (usually a fund entirely made up of bonds)


The pricing of Closed End funds differs from the way a Mutual Fund is priced because the "NAV" or Net Asset Value can differ from what the shares are bid at on the market, at either a discount or a premium to NAV. Mutual Funds are not purchased at either a premium or a discount to their NAV.

If a Closed End fund is listed, you can buy shares of it. There are occasions however that Open End Mutual funds will close to new investors and then open again at a later date. The recent announcement by Fidelity regarding their famous Magellan Fund re-opening to new investors is an example of this.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x32412

Which Taiwan Funds?

[aquart]

5. Why did they re-open Magellan?

[A HERETIC I AM]

7. The press release indicates many of their older shareholders are cashing out...

plus they have a new fund manager. The fund size is shrinking because of the redemptions and they want to open it again to capture new, younger investors.

[A HERETIC I AM]

6. One other thing: All ETF's are Closed end, but not all Closed end funds are ETF's!

"Exchange Traded Funds" are exactly that - traded on an exchange just like a stock. When they are originated, they issue a specific number of shares, just like when a company does an IPO and issues stock. They are then traded on an exchange. No more shares can be issued that would dilute the value of those already issued, but they can do a "split". Their share price is bid up or down based on any number of forces including supply and demand. They are also not "actively managed" meaning the fund manager is not changing the makeup of the portfolio. (They usually reflect an index or a specific investment sleeve or asset type)


Closed End funds and Open End Mutual Funds ARE actively managed. The fund manager is free to buy and sell portfolio positions if he feels they are underperforming or offer potential. When you sell an Open End fund you are actually redeeming them with the Mutual Fund Company. When you sell an ETF or Closed End shares, you are selling them into the market.