Closed-End Management Company
Categories: Investing
The majority of Mutual Funds are structured along either one of two lines. An open-end mutual fund adds on more shares as each new investor subscribes, resulting in a minute pro rata dilution in the portfolio, but overall larger growth as AUM continue to accumulate, somewhat similar to a stock split. Conversely, a sell order reduces the total number of shares accordingly.
A closed-end mutual fund has a fixed number of shares that will often be listed on the NYSE and are synonymous with an Exchange-Traded Fund, or ETF. As the number of shares are fixed, shareholders benefit or suffer from the closing price as listed at the end of each trading session.
Closed-end management companies oversee closed-end funds, often in a pooled arrangement, due to the reduced complexities of closed-end funds. There are no investor vs. admiral classes of shares, no front or back loads, no need to recalculate the daily number of shares, etc. that require administrative attention to the same degree as open-end funds.
For a somewhat gruesome but accurate visual analogy, the TV show The Walking Dead has an ever growing population of zombies that keep spreading and never seems to end...like an open-end fund. However, there was one group that created a fortress out of junk and scrap metal with an industrial shredder machine built over a pit. As zombies were lured into the pit, their parts would continue to fill volume in the pit, but the space within the junk fortress remained unchanged, like a closed-end fund.
Related or Semi-related Video
Finance: What is a Closed-End Fund?1 Views
Finance a la shmoop what is a closed-end fund? well it's a type of mutual fund [Man approaches mutual fund desk]
only like a bank at any convenient time it's closed
like its assets are enclosed in its price closed means that the fund itself
doesn't actively trade assets back and forth inside of it on a daily basis like
the most famous closed-end mutual fund in the world is Berkshire Hathaway [Man pushing pram of a baby with Berkshire Hathaway briefcase for a head]
Warren Buffett's you know other child the successful one it owns 40 or 50 key
assets from Geico to train companies to metal machinery firms in Israel to
boatloads of shares of stocks like coca-cola and Gillette and Wells Fargo
all of those assets are wrapped up in a tidy BRK bow and the stock market values [Stock market values appear]
ticker BRK daily by trading it back and forth among investors so yes the assets
inside of the fund do change but in an analogous mutual fund that is open the
value placed on the shares is at what is called net asset value, that value is
calculated by just adding up the 843 stocks at the mutual fund owns or however
many the number is and then just calculating a value based on the number [Calculation appears]
of share units comprising that open end mutual fund the closed-end fund has no
changes that way it's just investors valuing the whole bucket of investments
in one closed number now if you'll excuse us we have to get back to [Baby crying in a crib with Berkshire Hathaway briefcase for head]
babysitting for Warren Buffett isn't she just an angel