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Why Closed-End Muni Funds Tend to Have Longer Durations

Longer maturities and leverage increase the duration of the typical muni closed-end fund as compared to its open-end cousin.

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Alaina Bompiedi: The closed-end fund investor who is just starting out likely already knows about the structural differences between closed-end funds and their open-ended cousins. But they might not yet know that those structural differences can inform how these two investments construct their portfolios.

It seems relevant right now, as municipal funds have had a bit of a rough end to the year, to talk about differences in duration between the two types of investment options. Unlike shareholders of open-end funds, closed-end fund owners do not redeem their shares with the fund directly. Rather, when they want to liquidate, they sell their shares on a market. This means that the closed-end portfolio manager is not under the same liquidation constraints as her open-end peer, and can invest in the higher-yielding, less-liquid parts of the bond market.

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