Closed-end funds increase sales despite bond turmoil -Cerulli

NEW YORK, June 28 Fri Jun 28, 2013 4:47pm EDT

NEW YORK, June 28 (Reuters) - Sales of new closed-end funds have been on a tear in 2013, on pace to hit a post-recession high and practically double last year's levels, according to a report released Friday by Cerulli Associates.

New closed-end funds raised $10.5 billion from initial public offerings from January through May, the Boston research company said. In 2012, these funds drew a total of $11.3 billion in sales.

The 13 closed-end funds launched so far this year have lifted the industry to $288 billion in total market size, still small compared to the $13 trillion in open-ended mutual funds, according to Thomson Reuters data.

Last year 24 closed-end funds were launched, the most since 2007, when 41 were launched, according to data from Chicago research firm Morningstar.

Closed-end funds raise money during initial public offerings and invest in a portfolio of securities. They are actively managed and trade on exchanges and do not allow new contributions after they open.

Many funds concentrate on high income-producing assets like foreign bonds and asset-backed securities, something that has increasingly appealed to investors in today's low-rate fixed-income market. Some closed-end funds charge relatively high fees, invest in riskier bonds and use leverage, which means that the fixed-income market's recent turmoil could significantly deflate their returns.

Cerulli reported that asset managers said they plan to bring more closed-end funds to market within a year, including taxable bond, multi-strategy, domestic stock and alternative offerings.

The largest IPOs this year have included PIMCO Dynamic Credit Income, which invests in debt and asset-backed securities and raised nearly $2.9 billion; DoubleLine Income Solutions, which puts some of its assets in emerging market debt, $2.1 billion; and First Trust Intermediate Duration Preferred & Income Fund, $1.3 billion, which invests in financial company stocks and junk bonds, according to Morningstar.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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