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Are Interval Funds the Next Big Thing?

Close cousins of CEFs, interval funds offer a unique set of pros and cons.

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Interval funds are close cousins of closed-end funds, or CEFs, but they offer a unique set of pros and cons for investors. PIMCO made headlines last month when it launched an interval fund (PIMCO Flexible Credit Income) and registered to raise $1 billion in assets. The last CEF to raise more than $1 billion in assets was Goldman Sachs MLP and Energy Renaissance Fund GER in the fall of 2014. Interval funds have gained popularity in recent months as investors continue to search for income and are increasingly willing to invest in riskier fare to gain a bit more yield. These funds have some distinct advantages over CEFs, though there are plenty of reasons to avoid them.

Some in the financial press have asserted that, with all the challenges facing CEFs, particularly the potential imposition of the fiduciary standard on advisors and brokers, interval funds could be the next big thing. Asset managers seem to think so, too. As of the end of February, there were about 20 interval funds in registration, which would almost double the number of interval funds available. For comparison, just nine new CEFs launched in 2016, raising a paltry $3 billion in total; for the year to date through February 2017, there were two CEF IPOs, raising just $375 million in assets.

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