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CEF Specialist

Morningstar’s Top Tips For Investing in CEFs

Investors willing to take the time to learn the ins and outs of CEFs will discover a relatively unfollowed and often mispriced slice of the market.

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Many investors aren't familiar with closed-end funds, or CEFs. Some investors who are somewhat familiar with CEFs may view them as overly complex, believe they're difficult to use, or dismiss them with a "those things are just wacky" type of comment. While it is true that CEFs are structurally more complex than exchange-traded funds and open-end mutual funds, investors willing to take the time to learn the ins and outs of CEFs will discover a relatively unfollowed and often mispriced slice of the market. Whether you're new to CEFs or an old pro, here are some of our best tips to make investing in CEFs a better experience. The following are excerpts from Morningstar's Guide to Closed-End Funds, which is available to subscribers of Morningstar Direct. 

Just Say No at the IPO
It is often said that CEF IPOs are sold, not bought. At Morningstar, we believe that most investors should avoid purchasing shares of a CEF at the IPO, mainly because of the "CEF IPO Premium" phenomenon caused by the high commissions paid to brokers for selling shares and the absence of a fiduciary standard applied to those brokers.

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

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