Syndicate
Closed Investment Funds
The closed investment funds are maybe the most ignored and misunderstood of the mutual funds. The same as the open investment funds, there are closed funds for all the tasted and, also like them, they are closed funds for all the tastes and, also like them, they are actively managed. However, in difference to that of the open investment funds, the type of fund that now occupies us is issued the same as a share, that is, it requires a previous registration, and also there is a limited number of participations emitted, once the initial emission is subscribed, the participations are sold or bought (as you would with shares) in one of the main stock exchange markets, as is the NYSE of the AMEX, where the price is fixed by the auction market instead of being calculated with the VNA.
Due that the price is fixed over the base of the market opinion, the participation can be negotiated with premiums or with a discount in respect to the VNA. Although in some occasions these funds (depending on the interest of the investors in a determined region or sector or of the reputation of the management) are negotiated with a premium, most of them are traded with a discount over the real value of the security portfolio of the fund. This mechanism sometimes permits the aggressive investor to buy assets with a substantial discount that in average are cipher in a 7% but can get to 50% in extreme circumstances.
The investors that use this way of investment are searching for a revaluation of capital not only through the increase of the value of the securities on the funds portfolio, but also through a possible narrowing of the discount. Although it is rare for this to happen, it might be done in the case that closed fund decides to modify its statutes and to become open. When this happens, the investor finds himself or herself with an unexpected bargain, due that the discount disappears and the participations of the fund are valued according to the VNA.
If well the price of the closed investment funds tends to rise more slowly in a rising market, the truth is that, as a counterpart, it also tends to descend more slowly in a falling market. Due that the managers are net obligated to liquidate assets to confront possible rescues by part of the holders of participation, they can support better the fluctuations of the market and are less inclined to sell quickly.