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CEF Specialist

There's A Fire (Sale) in Bond CEFs

Stock market volatility has sent taxable-bond CEF share prices spiraling downward, but is this the best deal since the financial crisis?

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August's spike in stock market volatility has pushed taxable-bond closed-end fund share prices further from their net asset values, and many have reached discounts not seen since the financial crisis. As tempting as the current discounts might seem, there are some important factors to consider. This edition of Morningstar's CEF Monthly will examine how the current environment compares with past periods of share price dislocation and how some of our Morningstar Medalist CEFs have fared.

Global equity markets were rocked in late August after China acted to devalue its currency. Fears of a slowdown in the growth of China's economy quickly spread to developed markets. IShares China Large-Cap (FXI), for example, lost 11% in August and 25% over the trailing three months, while the S&P 500 tumbled 6.14% for the month, sending it into negative territory for the year to date through August. MS China A Share (CAF), a fund that invests in A-Shares of Chinese companies traded on the Shanghai exchange, sported the largest absolute discount, nearly 30%, of any CEF with more than $5 million in assets as of the end of August.

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Jason Kephart does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.