Most mutual bond funds are open-ended, and some are not. The closed-end funds are a universe unto themselves. Unlike open-end funds, closed-end funds have a finite number of shares. The price of the fund does not directly reflect the value of the securities within the fund. Nor does the yield directly reflect the yield of the bonds in the basket.
In investment-speak, the net asset value (NAV) of the fund, or the price of the securities within the fund, may differ significantly from the price of the fund itself.
Supply and demand for a closed-end fund may have more bearing on its price than the actual securities it holds. Closed-end funds tend to have high management fees (almost always more than 1 percent a year), and they tend to be more volatile than open-end funds, in part because they are often leveraged.
Closed-end funds are traded like stocks (yes, even the bond closed-end funds), and they trade throughout the day. You buy and sell them through any brokerage house — not directly from the mutual fund company, as you can do with most mutual funds.
All closed-end funds are actively managed. There are 631 closed-end funds, of which 414, or nearly two-thirds, are bond funds. The average yearly fee of these bond funds, per Morningstar, is a relatively chunky 1.27 percent.
If you do buy a closed-end fund, you should choose one selling at a discount to the NAV, not at a premium. Studies show that discounted closed-end funds tend to see better performance (similar to value stocks outperforming growth stocks).
