An “investment company” is a business that collects assets from investors and invests those assets in financial securities. Over the past 10 years through December 2025, with over $6.5tr of U.S inflows and roughly 4,600 new U.S. launches, exchange traded funds (ETFs) have arguably become the investment company of choice. However, ETFs represent only one type of investment company. Today we explore a perhaps lesser known investment wrapper, the closed-end fund.

What is an investment company?

An investment company is a fund (or company) that receives money from investors, and uses those assets to invest in financial securities. Thus, the performance of the investment company is driven by the performance of its underlying holdings. As of December 2025, there were over 15,000 U.S. investment companies, representing roughly $45tr in net assets (Chart 1).

Chart 1: Breakdown of U.S. Investment Companies
 

According to the SEC, there are three general forms of investment companies (open-end funds, closed-end funds, and unit investment trusts), which have different characteristics. While mutual funds are always structured as open-end funds, ETFs are typically structured as open-end funds but may be structured as UITs (for example, State Street’s SPY, which is both an ETF and a UIT).

Chart 2: Comparing Investment Companies
 

ETFs and mutual funds typically exhibit strong capacity for absorbing new capital efficiently and trade closely in line with their net asset value (NAV) (Chart 2). In contrast, CEFs raise capital primarily through an initial public offering (IPO) and then are closed off to new capital —hence the term "closed-end." Since CEFs trade on exchanges without creation and redemption like open-end funds, they often trade at a premium or discount to their NAV (to be discussed later on). Interestingly, there are even some ETFs which predominantly hold CEFs (for example, PCEF, YYY, FCEF, or XMPT, which collectively represent around $1.8bn in AUM as of December 31, 2025), and new funds are still emerging in this space, with YYYM launching in March 2026.

How many CEFs are there?

According to ICI, in 2005 there were roughly 630 CEFs, around 70% of which were bond-focused. In aggregate, these funds represented around $275bn in assets under management (AUM). According to CEF Advisors, as of December 2025, while AUM has remained relatively stable at around $280bn, the number of funds has contracted to 382, roughly a 40% decline.

Chart 3: CEFs Over Time
 

Historically we see that both taxable and municipal bond-focused funds have made up the majority of the CEF market in terms of the number of funds (Chart 3), with some of the largest issuers including BlackRock, Nuveen, Franklin Templeton, and Eaton Vance. We also note a sizeable number of specialty equity funds, which include funds that focus on commodities, natural resources, preferred shares, and option-based strategies.

Similar to other sources, we note the reduction in the total number of CEFs is due to more funds delisting (through liquidations and mergers) than new funds launching. Over the past 3 years, only six CEFs have come to market (Chart 4), while 72 have delisted or merged. As deletions have outpaced additions, the CEF universe has contracted by a cumulative 248 funds over the past 13 years.

Chart 4: CEF Additions & Deletions
 

What are the characteristics of CEFs?

The closed-end structure provides managers with a relatively stable pool of capital. This can be helpful for managing less liquid securities without having to worry about potential shareholder redemptions. However, the inability to participate in the creation/redemption process can give rise to frequent premiums/discounts – which is when the price of the CEF deviates from its NAV (Chart 5).

Chart 5: Premium/Discount
 

As documented in other studies, we see that most CEFs typically trade at a discount relative to their NAV (i.e. price is lower than NAV) (Chart 5). This gives investors the opportunity to purchase funds at less than the underlying assets are worth, a feature unique to CEFs. This can create more tactical opportunities for investors than other forms of investment companies such as ETFs or mutual funds.

We also see that U.S.-listed CEFs are generally older than ETFs. For example, Chart 6 shows the age distribution of current ETFs vs. CEFs as of December 2025. We see that current CEFs are around 25 years old, compared to ETFs that are around 4 years old.

Chart 6: CEF Age Distribution
 

Interestingly, one fund in particular, Adams Diversified Equity, has been around since 1929, long before the first ETF debuted in the 1990s. Despite a few very old CEFs, we see the majority of CEFs were launched in the past 50 years (Chart 6).

One of the key selling points of CEFs is the focus on producing consistent income, especially if the CEF has a managed distribution policy. Historically, the median yield of CEFs has been around 6-7%, which is roughly 3% higher than traditional fixed income securities and recently has exceeded even high-yield corporates (Chart 7). 

Chart 7: CEF Yield Over Time
 

Once a CEF, always a CEF?

It’s possible for CEFs to convert to an ETF. Why do it? Some of the benefits to converting include:

• elimination of the discount to net asset value (“NAV”)
• daily portfolio holdings transparency
• lower overall total expense ratios

From a fund manager's perspective, the key benefit might be the ability to raise new assets. Since CEFs primarily raise capital at IPO - unlike ETFs, which can raise capital continuously through daily creations & redemptions – asset growth in the CEF structure is largely driven by the appreciation of the underlying holdings. Given the popularity and flexibility of the ETF wrapper, this may help the fund raise more assets.

From an investor's perspective, the key benefit is the elimination of the premium/discount. Chart 8 highlights a sample of a CEFs that converted to ETFs. Note that within each example, the price of the CEF converges with its NAV. Also note the immediate reaction to the discount when each fund announced that it would be converting.

Chart 8: CEF Conversion to ETF
 

Overall, once a CEF converts to an ETF, the discount is eliminated and investors realize a benefit through price appreciation.

Conclusion

While the number of CEFs has declined over the past decade, CEFs remain a compelling investment vehicle for some investors. Interestingly, there are even some ETFs which invest exclusively in CEFs, representing steady demand for the unique security type. With median yields exceeding traditional fixed income securities and the ability to purchase assets at a discount to NAV, CEFs offer differentiated features that active investors and quantitative-focused funds can capitalize on.

Disclaimer:

Information set forth in this communication contains forward-looking statements that involve a number of risks and uncertainties. Nasdaq cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information. Forward-looking statements can be identified by words such as “will,” “believe” and other words and terms of similar meaning. Forward-looking statements involve a number of risks, uncertainties or other factors beyond Nasdaq’s control. These risks and uncertainties are detailed in Nasdaq’s filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 10-K and quarterly reports on Form 10-Q which are available on Nasdaq’s investor relations website at http://ir.nasdaq.com and the SEC’s website at www.sec.gov. Nasdaq undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Nasdaq® is a trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2026. Nasdaq, Inc. All Rights Reserved.