CEF Specialist

CEF Initial Public Offerings Are Hot

Mike Taggart, CFA

In last week's CEF Weekly article, Morningstar senior analyst Cara Esser discussed  the first-quarter initial public offerings of closed-end funds. Eight CEFs were launched, including four in the holiday-shortened final week of March. For CEF issuance, this is a very rapid pace. Prior to the financial crisis of 2008, 30 or more yearly CEF launches were normal. But, with fewer underwriters post-crisis, it is more difficult to get a CEF IPO on the marketing calendar.

In November 2011, I wrote a two-part article on CEF IPOs investigating whether purchasing CEF IPOs was a cardinal sin of investing and whether paying the 4%-plus premium on the IPO was a waste of money. We found that while 2011 had been (up to the point of publication) a horrid year for CEF IPO performance, over the previous 10 years, 73.7% of CEF IPOs had delivered a positive share price total return for their investors.

Mike Taggart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.