Morningstar, Inc. Commentaries
Dec 31, 2013
Click here to access 10 Inexpensive CEFs to Put on Your Radar
With many closed-end funds ending the year trading at substantial discounts, it's natural for value-conscious investors to scour the CEF market for bargains. If discounts contract, they can provide a margin of safety to investors: If the net asset value stays constant, investors benefit as the share price converges toward its underlying NAV. Similarly, contracting discounts can ease the pain of a declining NAV. All that said, there's no guarantee that purchasing discounted CEFs will lead to positive returns. After all, discounts can widen and management teams can underperform. Investors should dig deeper by looking at valuation on a relative basis and by focusing on high-quality funds run by experienced managers with sound processes and low fees. Combining Morningstar Analyst Ratings with z-statistics can be a powerful way to uncover great funds at attractive valuations.