ETF Watch: New Fund Targets Closed End Funds

March 21, 2017

Today sees the launch of a new ETF that will invest in closed-end funds. The Saba Closed-End Funds ETF (CEFS) is an actively managed fund that aims to offer investors capital appreciation and dividend income.

The fund comes with a rather large expense ratio of 2.42% and is listed on the Bats exchange, which is owned by ETF.com's parent company, CBOE.

CEFS is subadvised by Saba Capital Management, an investment advisor that lists closed-end funds as one of its three core strategies. The firm manages CEFS through a combination of fundamental and quantitative analysis and proprietary screening tools, the prospectus said.

Potential For Income

“Many closed-end funds are trading at an attractive discount to their net asset value. In an environment where investors are searching for yield, we believe closed-end funds offer high income and a margin of safety due to the discount,” said Boaz Weinstein, Saba Capital’s founder and chief investment officer.

The fund will focus on “high yield opportunities” and has wide latitude to invest in different types of CEFs in terms of maturity range, credit quality, asset class and types of securities. It can also take short positions and make short sales.  

There are a number of ETFs that invest in closed-end funds, the largest of which is the index-based PowerShares CEF Income Composite Portfolio (PCEF), with $667 million in assets under management. PCEF debuted in 2010. Although First Trust rolled out a pair of actively managed CEF ETFs last year, neither has accumulated much in the way of assets. Unsurprisingly, the passively managed PCEF is cheaper than CEFS, charging an expense ratio of 1.94%. 

Contact Heather Bell at [email protected].

 

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