Exchange traded funds (ETFs) and closed-end funds (CEFs) on the
surface may seem similar - they're transparent baskets of stocks -
but look closer. They're different tools that operate in different
ways, and it's worth understanding.
The resemblance that ETFs share with CEFs is causing some
confusion among investors. Both ETFs and CEFs are traded on a stock
exchange, contain a portfolio of instruments, and try to track a
particular theme. But from there, they diverge.
David Goodboy for Trading Markets explains
the similarities and differences of these investing tools to help
you make the best decision for your investment goals. [
Ireland Boasts a CEF.
- An ETF is a portfolio of stocks, bonds, options, and/or other
instruments that trade as one stock on a stock exchange. They are
designed to closely track a particular index, sector or
- A CEF and an ETF can appear very similar at first, but they
have differences. The term "closed" means that once the capital
is raised for the fund, no more shares are available for
investors. It is "closed" to new investment.
- ETFs by and large are passively managed and CEFs are actively
- The exact portfolio that makes up the ETF is public knowledge
all day, every day, whereas the ingredients in a CEF are not
always publicly known at all times.
- CEFs rarely trade near their net asset value (
) and premiums or discounts are not unusual. [
PowerShares Has an ETF of CEFs.
For more stories about closed-end funds, visit our