Closed Ends About Closed

Sat., Aug. 3, 1996

Tim Quinson Bloomberg Business News

The market for closed-end investment funds is depressed, with no investor demand for new funds and lackluster performance.

No new closed-end funds have been sold this year and existing funds are losing value relative to the underlying value of securities held by the funds, according to Thomas J. Herzfeld Advisors Inc., a Miami-based money management firm specializing in closed-end funds.

“The closed-end fund market is going through one of its toughest periods ever,” said Thomas Herzfeld, the firm’s president.

Today, about 82 percent of the nation’s 510 closed-end funds trade at a discount to their net asset value, or NAV, compared with 63 percent at the end of 1993, Lipper Analytical Services Inc. reported. Equity funds are trading at an average 13 percent discount to NAV, up from 10 percent at the end of last year, according to the research group.

“Closed-end fund investors are getting frustrated and moving money to hot-performing mutual funds or individual stocks,” said Donald Cassidy, an analyst for Lipper Analytical’s Denver office. “After a brief rally from October to January, the performance of closed-end funds has worsened.”

Closed-end funds differ from open-end funds in that their shares trade on stock exchanges and have two prices. There’s the share price, which is the price investors pay to buy the fund’s shares on the open market. And there’s the net asset value, or the average price of all the fund’s securities.

An open-end fund’s shares rise and fall in price based solely on the value of the securities it holds.

The total U.S.-traded market for closed-end funds is about $110 billion, compared to open-end funds’ $3.18 trillion in assets.

Money management companies would be trying to sell new funds if there were even a glimpse of demand from investors, and if fewer funds traded at a discount to NAV, Lipper’s Cassidy said.

The market for new closed-end funds started to dry up in 1994, and last year only five companies - Eaton Vance Corp., Franklin Resources Inc., Avalon Capital Corp., Merrill Lynch & Co. and Putnam Investments Inc. - sold new shares of a closed-end fund. The five fund offerings raised a combined $550 million.

That was way down from the boom years. In 1993, a record 125 new funds, worth $18.2 billion, were sold, up from 101 new funds, worth $17.8 billion, in 1992.

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