MOTLEY FOOL ASK THE FOOL
Offering Explanations
Q: Can you explain what “closedend” funds are?
– F.E., Dothan, Alabama A: Closed-end funds (CEFS) are similar to mutual funds, but with a twist. Both collect dollars from investors and deploy them into investments chosen by professional money managers. But when closed-end funds are created, a set number of shares are sold to the public, raising a fixed amount of money. After that, the shares generally trade in a secondary market, like stocks do. Also like stocks, their prices are based on supply and demand, unlike traditional mutual funds, whose prices are based on the values of the securities (such as stocks and bonds) they hold.
If you buy shares of a traditional mutual fund, your dollars go to the mutual fund company, which will issue more shares and invest that money; when you sell, it will redeem your shares at the fund’s current net asset value (NAV), less any fees. But when investors buy or sell CEFS, they transact with other buyers or sellers, not with the CEF company.
Closed-end funds come in several varieties. They can be volatile, occasionally charging high fees. Learn more before investing in any, starting at Investor.gov.
FOOLISH TRIVIA Name That Company
Some assume I’m a Chinese company, but I was launched by a German immigrant in 1829 in Pottsville, Pennsylvania, making me America’s oldest brewery. I introduced Lord Chesterfield Ale and Porter that year, and I’ve been family-run ever since. The sixth generation, featuring four sisters, is next in line now. During Prohibition I stayed afloat by making “near beer” and ice cream. Thanks to a partnership with Molson Coors, I’m now available in more states, and I’ve been America’s biggest seller of craft beers (by sales volume) for years. In only eight more years, I’ll be two centuries old! Who am I?
Last Week’s Trivia Answer
I trace my roots back to 1832, when two cousins founded a farm machinery company in France. When the next generation took over, I got my current name – and the first rubber product bearing it was a brake pad. I developed detachable bicycle tires in 1891 and introduced air-filled automobile tires in 1895. Today, with a market value around $30 billion, I’m one of the world’s biggest tire manufacturers, recently with 124,000 employees and 117 production sites in 26 countries. My Man is a well-known mascot, and I have guided many travelers, sometimes with stars. Who am I? (Answer: Michelin Group)