afm can you explain the benefits of a closed-ended fund? something like no fees and commissions at the beginning when you buy and when you sell? and does the discount exist because it is a fixed income instrument?
CEF is a fund that trades like an ETF but is a fixed number of shares. Let's say 10,000,000 shares were sold when the fund opened. There will never be any more with most CEF's (closed end). The value of the fund goes up and down with the value of the market, and the shares trade based on perceived value. Unlike most ETF, where more buyers will result in more shares created by buying more of the underlying stock. Hope that makes sense. No one can create or redeem shares in a CEF.
So when you buy ADX, you will buy it from another owner. When you buy an ETF like SCHD, the fund can create shares buy buying shares of the underlying stocks that make up SCHD, through an authorized agent. They can also sell shares. In other words they can create or dissolve shares as they wish.
Fixed income means an instrument delivers a fixed income on a monthly, quarterly or yearly basis, and with a price that often remains stable. Bonds are the absolute epitome of fixed income, that's what they are. The price is usually stable and they trade for the income stream ( people buy them to get the yield.) ADX is what I call almost fixed income because their current policy is to pay a specific yield every year. And they do. They also trade at what I consider a large discount, when you buy a share, you "own "more underlying stock than the share cost you. Hope that makes sense.
CEF's are usually income producing products. That's their intention. They do happen to have price changes that can follow the market but not necessarily match it. There are some problems with them. Because they concentrate on income, the price won't move nearly as much as a stock fund in an up market. On the other hand, they continue to pay the same dividends in down markets for the most part. Good to study before buying. Sometimes they will use leverage, large amounts of it, to create income stream, so interest rate changes can have large effects on the underlying price.
