Research / Research Papers

Closed-end Fund IPOs

2007-06-29

Dr. O'Neal describes a pattern of consistent losses relative to NAV observed after the IPO of closed end funds. Closed-end funds IPO at a 5% premium to their NAVs and within 6 months trade at a 5% discount to their NAVs. It appears that investing in a closed-end fund at the IPO is dominated by investments in seasoned mutual funds. This suggests that closed-end fund IPOs don't pass the NASD's 'reasonable basis' suitability test and recommendations to buy a closed-end fund at the IPO should therefore be per se unsuitable.

By Edward O'Neal

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Eddie O'Neal
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