Many international funds — regional and country funds in particular — are closed-end funds.
Unlike open-end mutual funds, closed-end funds raise money only once by offering a fixed number of shares at an initial public offering (IPO).
Then the shares trade on an exchange or organized stock market, just as stocks do.
Closed-end funds have some important advantages, especially when it comes to investing in emerging markets. Their fund managers tend to have more flexibility in decision-making, because the funds tend to be smaller, and the assets they have to invest are more predictable, since they don't need to plan for new infusions of cash. And because they don't redeem shares, they're able to invest their assets fully without worrying about liquidity.
That gives them the opportunity to put money into investments that would be less appropriate for conventional mutual funds
Because the share prices of closed-end funds rise and fall according to investor demand, they usually trade at either a discount or a premium compared to their underlying portfolios' net asset value (NAV).
You might want to be extra cautious if a fund you're interested in is trading at a steep premium. These shares can be volatile,
and you run the risk of watching the value of your shares drop. At the same time, since these funds can be volatile, you may be able to find an attractive fund trading at a substantial discount. If the shareowners vote to 'open-end' or even to liquidate the portfolio, you could gain as the discount disappears.
Jeffrey Rosensweig, Goizueta Business School, Emory University
Jeffrey Rosensweig, Goizueta Business School, Emory University 