Facts, Facts and More Facts: Closed-end funds – IPO Activity Off to a Sluggish Start

After three years of steady progress, the closed-end fund asset base leveled off and reached $31.8 billion at the end of February 2012, $2.1 billion short of the peak reached in July 2011. The adverse effects of equity market retrenchment in the latter half of 2011, and falling commodities and bond markets at the beginning of 2012, plagued the segment in the last seven months.

IPO activity at the start of 2012 also dwindled, with only one fund – the Low Volatility Canadian Equities Income Fund – launched in February (compared to four launches in the first two months of 2011). The fund, whose IPO raised $29 million, will invest on an equally-weighted basis in 30 of the lowest volatile equity securities in the S&P/TSX Composite Index that have a minimum current yield of 2.5%. This fund follows a typical enhanced benchmark strategy, an indexing strategy that allows managers to modify the contents of the tracked benchmark.

The launch of this and five other indexed closed-end funds in 2011 points to the rising prominence of indexed mandates in the closed-end fund sector. At the end of February 2012, more than one-quarter of closed-end fund assets followed an index- or a benchmark-tracking strategy (up from 17.5% during the December 2008 trough).

For more information on indexing and closed-end funds, please see the Trend Lines article in the March 2012 issue of Insight Advisory Service http://investoreconomics.com/issue/insight-advisory-servicePosted by Juhaina Kabir juhaina@iei.ca.