Using Closed-End Funds to Seek Income

Like many investors, you may be looking for ways to generate consistent income. Closed-end funds (CEFs) may be able to help you achieve this important goal. CEFs offer the opportunity to seek attractive yields and capital appreciation in a professionally managed investment vehicle.
Understanding Closed-End Funds

Like traditional mutual funds, closed-end funds (CEFs) are professionally managed portfolios that offer a convenient way to access a typically diversified pool of investments. But CEFs differ in an important way: they issue a fixed number of shares through an initial public offering. From that point forward, CEF shares trade on a stock exchange, offering daily liquidity at the current market price of those shares, as opposed to the actual value of the shares.1

Closed-end funds offer several attractive features

Income Generation

Most CEFs seek to distribute income to shareholders on a monthly or quarterly basis by pursuing strategies intended to produce consistent yields, although no distributions are guaranteed.

 

Stable Asset Base

Because CEF shares can only be traded on an exchange – as opposed to transacting directly with the fund, as is the case with mutual funds – CEFs have a generally stable asset base that allows the portfolio manager to implement the fund’s investment strategy without having to manage inflows or redemption requests.

 

Professional Management

CEFs are actively managed by investment professionals and offer access to institutional-quality managers and strategies that may not be available in traditional mutual funds.

 

Flexible Structure

CEFs have the ability to employ leverage by issuing debt or preferred shares, or to invest in less liquid securities. These strategies may offer the potential for higher income and enhanced returns, although the potential for better performance comes with increased risk.2

 

Real-Time Trading

CEFs are typically listed on an exchange, allowing you to purchase shares throughout the trading day. Because the market price may fluctuate, CEF shares may sell for more or less than the value of their underlying investments. CEF shares often trade for less than their NAV.

 

Automatic Dividend Reinvestment

Investors usually have the option to reinvest CEF dividends back into the fund on an ongoing basis, which offers the advantage of potentially compounding their investment returns.

Morgan Stanley is a Global Leader in Closed-End Funds

We offer the scale, access and insights you need to participate with confidence in this dynamic market.

  1. 01
    Our size and expertise are unmatched in the industry

    Morgan Stanley is the largest distributor of closed-end funds.3

  2. 02
    We offer unparalleled access to the closed-end fund marketplace

    Morgan Stanley has relationships with the top asset managers in the CEF industry, giving you access to a diverse universe of CEFs in the primary and secondary markets.

  3. 03
    Our research and insights help investors navigate the universe of available funds

    Morgan Stanley Wealth Management Global Investment Office actively covers nearly 100 CEFs across the equity, taxable fixed income, and municipal bond categories. We publish insights that enable you to make more informed investment decisions.

Find a Financial Advisor to Learn More

If you’d like to know more about the income and capital appreciation potential of closed-end funds, a Morgan Stanley Financial Advisor can help.

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