Post by Admin/YBB on Nov 7, 2023 16:56:00 GMT -6
ETFs of CEFs
The closed-end funds (CEFs) are among the oldest funds (late-1800s) available, but they are complex. So, they haven’t caught on as much as the later products such as mutual funds/OEFs (1920s) and ETFs (1990s). Some recent CEF variants include interval-funds (one can buy anytime, but redemptions are restricted) and newer term-structure CEFs (these terminate in about a dozen years).
One interesting way is to buy ETFs that are funds-of-CEFs. It avoids selecting particular CEFs and there may be some safety from the groups of CEFs. High distributions remain their attractive feature.
There is of course a layering of the ERs – those at the ETF level (direct ERs/fees) and from the underlying CEFs (indirect ERs/fees). As interest and leverage costs are also included in the ERs, the total ERs for these ETFs may be quite high. In fund reports, different tables may show the ER impacts differently. The SEC-required ER impact illustrations include the total ER (so that the ETF buyers are aware of the toral ERs), but fund Income Statements and Financial Highlights show only the direct expenses (i.e., those actually paid out from ETF operations). Here are the examples of the ETF-management-fees/total -fees, with some other attributes: Saba CEFS (1.10/2.90%; hybrid; some rate hedging; Saba is a CEF activist), First Trust FCEF (0.85/2.20%; hybrid), Invesco PCEF (0.50/1.99%; hybrid), VanEck XMPT (0.40/1.81%; muni CEFs), YYY (0.50/2.72%; HY CEFs). Recently, Saba took control of income CEF GIM and will change it into a renamed hybrid SABA (previous owner/manager Franklin-Templeton/Hasenstab was on the losing end).
Creation/redemption process for these ETFs may be for cash, not in-kind. This means less or no tax-efficiency and larger tracking errors between their prices and NAVs. This may be because many such ETFs are in small and specialized CEF markets, and it may be difficult for authorized participants to deal in creation/redemption baskets consisting only of CEFs. Also, there may be a limited number of authorized participants. If the creation/redemption process is completely disrupted, the ETF may trade like a CEF (i.e., at high premiums/discounts). Despite this, only FCEF among these 5 ETFs had a small CG distribution in 2022 in the last 5 years (M* Quote/Performance/Distribution). This was surprising considering that several funds have made outrageously high distributions in 2022 and 2023.
etfdb.com/innovative-etfs-channel/earning-income-through-cef-etfs/
www.etftrends.com/innovative-etfs-channel/earning-income-through-etfs-cefs/
www.thestreet.com/etffocus/high-yield-ideas/etfs-of-cefs-up-to-9-yields-available-for-income-investors
The closed-end funds (CEFs) are among the oldest funds (late-1800s) available, but they are complex. So, they haven’t caught on as much as the later products such as mutual funds/OEFs (1920s) and ETFs (1990s). Some recent CEF variants include interval-funds (one can buy anytime, but redemptions are restricted) and newer term-structure CEFs (these terminate in about a dozen years).
One interesting way is to buy ETFs that are funds-of-CEFs. It avoids selecting particular CEFs and there may be some safety from the groups of CEFs. High distributions remain their attractive feature.
There is of course a layering of the ERs – those at the ETF level (direct ERs/fees) and from the underlying CEFs (indirect ERs/fees). As interest and leverage costs are also included in the ERs, the total ERs for these ETFs may be quite high. In fund reports, different tables may show the ER impacts differently. The SEC-required ER impact illustrations include the total ER (so that the ETF buyers are aware of the toral ERs), but fund Income Statements and Financial Highlights show only the direct expenses (i.e., those actually paid out from ETF operations). Here are the examples of the ETF-management-fees/total -fees, with some other attributes: Saba CEFS (1.10/2.90%; hybrid; some rate hedging; Saba is a CEF activist), First Trust FCEF (0.85/2.20%; hybrid), Invesco PCEF (0.50/1.99%; hybrid), VanEck XMPT (0.40/1.81%; muni CEFs), YYY (0.50/2.72%; HY CEFs). Recently, Saba took control of income CEF GIM and will change it into a renamed hybrid SABA (previous owner/manager Franklin-Templeton/Hasenstab was on the losing end).
Creation/redemption process for these ETFs may be for cash, not in-kind. This means less or no tax-efficiency and larger tracking errors between their prices and NAVs. This may be because many such ETFs are in small and specialized CEF markets, and it may be difficult for authorized participants to deal in creation/redemption baskets consisting only of CEFs. Also, there may be a limited number of authorized participants. If the creation/redemption process is completely disrupted, the ETF may trade like a CEF (i.e., at high premiums/discounts). Despite this, only FCEF among these 5 ETFs had a small CG distribution in 2022 in the last 5 years (M* Quote/Performance/Distribution). This was surprising considering that several funds have made outrageously high distributions in 2022 and 2023.
etfdb.com/innovative-etfs-channel/earning-income-through-cef-etfs/
www.etftrends.com/innovative-etfs-channel/earning-income-through-etfs-cefs/
www.thestreet.com/etffocus/high-yield-ideas/etfs-of-cefs-up-to-9-yields-available-for-income-investors