Description
This article is from the A Guide to
Closed-End Funds (CEFs).
CEF Liquidity
The large majority of CEFs trade on the NYSE and, for most,
liquidity is not a problem for the small investor. However, a few CEFs
are fairly illiquid---trading, at an average, only a few hundred
shares daily. If liquidity is a concern, then the investor should
avoid such funds. The reason is obvious: if the investor wants to
unwind a large position (relative to the average daily number of
shares traded) in a short time, he will affect the quotes, and will
probably depress the prices. For an investor in mutual funds, except
for rare cases, liquidity is not a concern: when he wants to sell or
buy, he will be able to do so at the NAV.
For the savvy CEF investor, liquidity should not pose a problem.
Occasionally, it may create additional opportunities. For example,
during adverse market conditions, illiquid CEFs tend to trade at
remarkable discounts, as investors stampede to sell, continually
depressing the prices. A mark of an intelligent investor is to profit
from such stampedes: buy when the crowd sells, sell when the crowd
buys. Professional investors will rarely take positions in such funds,
leaving the field clear for the individual investor.
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CEFs, closed-end fund, premium, discount, volatility, trading, investing, leverage, yields, buying, selling, shares, money, funds, mutual funds, adventages, disadvantages, liquidity, commissions, brokers, source, information, reference
