Investors chasing yield in this low-rate environment are jumping into alternative vehicles. That’s helping closed-end income funds stage a comeback.
Such funds, which offer a fixed number of shares and are closed to new capital once they start operating, have their attractions, but investors should exercise caution. Expenses for closed-end funds tend to be higher than with exchange-traded funds, they are more complex and they usually carry more risk. Their active managers are free to use leverage and invest in a variety of assets in the hope of delivering higher returns than mutual funds with static bond mixes.
