Volatility of CEFs
Description
This article is from the A Guide to Closed-End Funds (CEFs).
Volatility of CEFs
Many of the CEFs invest in exotic markets---South African gold mines (ASA), warrants (EWF), or emerging markets (IGF, CRF). Swings of 10% daily are not uncommon; sometimes, markets may move as much as 50% in a week. For conservative investors, such volatility may be undesirable---they may prefer some of the diversified domestic CEFs which are steady and reliable. Most mutual funds do not invest in such markets, since liquidity and panic redemptions are a major concern.
Again, for the savvy CEF investor, volatility may present opportunities unavailable to the mutual fund investor. A volatile fund will swing from discounts to premiums more often, thereby presenting more opportunities to trade.
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