Why Brokers Favour Open-ends

Article Excerpt

We devote a lot of time to analyzing closed-end funds because these funds often provide attractive opportunities for our clients. We mainly recommend closed-ends when they trade for less than asset value, as they often do. For every $1 you invest in a closed-end, you may have $1.10 or $1.20 working for you. Then too, closed-end funds sometimes rise in value so that most of this discount is eliminated. When that happens, you can earn a profit of 10% to 35% or even more, virtually risk-free. You may wonder why brokers so rarely recommend closed-end funds. The answer is that while closed-end funds are attractive to a broker’s clients, it works better for brokers to place their clients in conventional, open-ended funds. If a broker sells you a closed-end fund, he may charge you a 2% commission. (Individual brokers get to keep perhaps a third of fees and commissions they bring in.) The broker won’t earn another dime on that asset until you…

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