Oldies But Goodies: Closed-End Stock Funds From the 1920s Rack Up Impressive Gains
In the go-go market mentality of the moment, long-term performance seems to matter a whole lot less than divining the next flavor of the month.
But real investors know that what counts is the long haul and few investments have done better than a group of closed-end funds started more than sixty years ago. Just like mutual funds, closed-end funds invest in stocks, bonds, real estate and other assets. But closed-end funds issue shares just once while mutual funds continually issue new shares.
In the late 1920s, scores of closed-end funds set up shop but were wiped out in the Great Depression. Yet there are a few survivors that have posted more than respectable returns. Tri-Continental, Salomon Brothers Fund, Central Securities and Great American have been finding great companies to invest in for decades. Tri-Continental has posted an annual average return of 12 percent for the last 10 years. Salomon Brothers, Central Securities an Great American have racked up gains of 12 percent, 18 percent, and 13 percent, respectively. That these funds are in business, much less that they've posted strong returns, is quite a testament. They're about as stodgy as you can get yet also consistent producers.
Most of these closed-end funds have low annual expenses, which help to increase their overall returns. They also tend to be more conservative than your basic growth or growth and income fund. Just like many Fortune 500 stocks, these closed-end funds issue dividends, another perk for those who want a little pay back as they realize gradual capital gains.
If you can buy any of the above funds at a discount to their net asset value, so much the better. When closed-end funds are in favor, investors are willing to pay more for them than their net asset value, or what the stocks, bonds and other assets in their portfolio are actually worth. When closed-end funds are out of favor, they tend to trade at a discount to their net asset value. Studies have shown that if you can buy a fund at a discount, your long-term gain tends to be higher than someone buying the same fund at a premium.
Bottom line: Check out the above funds for their steady-eddy characteristics.
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