The vast majority of mutual funds and exchange-traded funds (ETFs) available to retirement investors are open-end funds, but you might find that certain closed-end funds can play an important role in your portfolio.
A closed-end fund is a fund that offers a set number of shares. Like other ETFs and mutual funds, a closed-end fund is made up of a collection of securities and can provide investors with an easy way to build a fully diversified portfolio.
PROSAsset managers can utilize leverage to boost returnsMay offer higher returns
CONSActively managed CEFs may have higher expense ratios than passively managed fundsUsually carry more risk
Open-end funds produce or delete shares to meet demand, unlike closed-end funds. When you buy open-end fund shares, the asset manager uses the money to buy more fund assets.
PROSNo risk that fund market value will trade below net asset valueMarked to market — i.e., the share price always matches the net asset value
CONSNo opportunity for market value to exceed net asset valueCan only be traded once per day
Open-end or closed-end, a fund managed by a business that routinely beats its benchmark index is a strong investment. Open-end vs. closed-end funds are more about alternatives.