Closed-End Fund IPOs Often Give Investors the Short End of the Stick

In last week’s blog post about closed-end mutual funds [click here for blog post], I warned investors about paying a premium when investing in a closed-end fund’s initial public offering (IPO) and suggested that the most prudent thing to do is invest after the IPO. According to the Closed-End Fund Association (CEMA), IPO fees generally range from 4.5%-4.75%.

Although closed-end funds offer liquidity, investors should view a closed-end fund IPO as a long-term investment. Most problems arise when closed-end funds are traded on a short-term basis. Of the six recently issued IPOs listed below, only the Goldman Sachs MLP Income Opportunities Fund is currently in positive territory, trading about 1% above its IPO price. However, since the Goldman fund began trading just two weeks ago, the jury is still out on how well IPO investors are going to fare both near-term and long-term. As mentioned in a previous blog post, investing in a closed-end fund IPO is almost always a losing short-term bet.

ClearBridge American Energy MLP Fund [CBA] (-18.20%)
IPO date 6/26/2013 @ $20/share. Today’s opening price $16.36/share.

KKR Income Opportunities Fund [KIO] (-11.75%)
IPO date 7/26/2013 @ $20/share. Today’s opening price $17.65/share.

THL Credit Senior Loan Fund [TSLF] (-12.10%)
IPO date 9/20/2013 @ $20/share. Today’s opening price $17.58/share.

Center Coast MLP & Infrastructure Fund [CEN] (-15.15%)
IPO date 9/26/2013 @ $20/share. Today’s opening price $16.97/share.

Ares Multi-Strategy Credit Fund [ARMF] (-16.84%)
IPO date 10/29/2013 @ $25/share. Today’s opening price $20.79/share.

Goldman Sachs MLP Income Opportunities Fund [GMZ] (+1%)
IPO date 11/25/2013 @ $20/share. Today’s opening price $20.20/share.

Related Links:

Investing in Closed-End Fund IPOs: A Risky Bet

FINRA Sanctions Merrill Lynch and UBS for Failing to Supervise the Sale of Closed-End Funds

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