Closed-ended funds: 2 ways to make and 2 ways to lose money

The price of a closed-ended fund is tied to the market value of the underlying securities. But it doesn't match NAV exactly. There is no process to peg the price to the NAV daily.

Instead, the price is set by the market, based on supply and demand for the shares of the fund. In a sense, a closed-ended fund is a set of securities within a security - a basket of fluctuating stocks trading inside a traded stock shell.

Closed-ended funds provide investors with two ways to make and two ways to lose money:

• The underlying value fo the securities portfolio changes.
• The market's assessment of the value of the portfolio changes, which usually creates a discount or premium to portfolio value in the price of closed-ended fund shares.