INSIGHTS
By
John Tabb,
Chief Operating Officer
Aug 5, 2025
Traditional income tools fall short in today’s market. Discover why advisors often overlook Closed-End Funds — and how CEFs can deliver higher yields, monthly cash flow, and tactical opportunities.
A Changing Income Landscape
For decades, building income portfolios was relatively straightforward. Advisors relied on a blend of high-grade bonds, dividend-paying equities, and open-end mutual funds to meet client needs. That world is gone.
Today, yields on traditional fixed income are often insufficient, markets are more volatile, and client expectations for consistent monthly cash flow are higher than ever. In this environment, financial advisors are rethinking the tools they use to generate reliable income.
We believe one investment structure deserves far more attention than it gets: Closed-End Funds (CEFs). Despite being one of the oldest fund structures in the U.S., CEFs remain underutilized by many advisors — even though they can offer features well-suited to today’s yield-starved world.
What Exactly Is a Closed-End Fund?
At a high level, CEFs are professionally managed investment funds — much like mutual funds and ETFs — but with one important difference:
Fixed Capital Structure: CEFs raise a set amount of money during their initial public offering (IPO). After that, the number of shares is fixed. Unlike open-end mutual funds, CEFs do not continuously issue or redeem shares.
Exchange-Traded: Shares are bought and sold on exchanges, similar to stocks and ETFs. Investors trade with one another, not directly with the fund.
Professional Management: Like other pooled vehicles, CEFs are overseen by professional portfolio managers, often with specialized expertise.
This fixed structure can create unique opportunities — and explains why CEFs can look and behave differently from mutual funds and ETFs.
Why Many Advisors Overlook CEFs
Despite being around for over a century, CEFs are often ignored by advisors. Why?
Familiarity Bias
ETFs and open-end mutual funds dominate the industry’s product shelves, marketing budgets, and financial media coverage. Advisors naturally default to what’s familiar and visible.Misunderstood Structure
Advisors may be less comfortable with the idea of funds trading at a discount or premium to net asset value (NAV). They may view it as “extra complexity,” when in reality it may create opportunities.Marketing Gap
Mutual fund and ETF providers spend heavily on advisor education and distribution. By comparison, CEFs receive less attention, even though they manage nearly half a trillion dollars in assets across hundreds of strategies.Specialized Reputation
CEFs are sometimes viewed as a specialized corner of the market rather than a mainstream income solution. We believe that perception has kept many advisors from exploring their full potential.
Why Closed-End Funds Deserve a Second Look
1. Attractive Yields in a Low-Rate World
CEFs may distribute income at levels above traditional open-end bond funds.
While core bond ETFs may yield 3–4%, income-oriented CEFs often deliver 6–8% or more, depending on strategy and market environment.
This is partly because CEFs can use modest leverage and access less liquid, higher-yielding assets that open-end funds typically avoid.
For clients frustrated by low yields, CEFs can help close the gap between income needs and portfolio output.
2. Consistent Monthly Cash Flow
CEFs are typically built with income delivery at the center of their strategy.
Many pay monthly distributions, offering consistent cash flow that can align with client spending habits.
This regular cash flow can help advisors manage withdrawal sequencing and reduce the need for ad-hoc asset sales during volatile markets.
3. Ability to Trade at Discounts (or Premiums)
Unlike ETFs and mutual funds, CEFs often trade at prices different from their NAV.
Buying a fund at a discount means you’re effectively paying less than the underlying assets are worth.
Discounts can narrow due to strong performance, improved sentiment, or distribution increases — offering potential for additional upside beyond yield.
This “pricing inefficiency” is a feature unique to CEFs — and an area where active advisors can add value.
4. Managers Can Stay Fully Invested
Because they don’t face daily redemptions, CEF managers aren’t forced to hold excess cash or sell assets during market stress. This allows them to stay fully invested in their income strategy, regardless of short-term flows.
For advisors, that translates into portfolios where the underlying managers can focus on generating yield — not managing liquidity risk.
The Risks Advisors Need to Consider
Of course, no investment structure is risk-free. CEFs have unique risks that advisors must understand and manage carefully:
Leverage risk: The use of leverage can amplify returns but also magnify losses during downturns.
Discount/premium volatility: Prices can diverge from NAV, which may create losses if funds are sold at the wrong time.
Distribution sustainability: Some CEFs may cut distributions if income levels can’t be maintained.
Sector concentration: Overexposure to a single asset class or sector can increase volatility.
These risks are real, but they can be mitigated through careful selection, diversification, and active oversight.
Why Advisors Should Care Now
The modern income landscape is tougher than ever. Advisors are under pressure to deliver:
Higher yields in a low-rate world
Consistent cash flow that aligns with client needs
Portfolio resilience in volatile markets
CEFs are uniquely positioned to address these challenges. Yet many advisors still overlook them — leaving untapped potential on the table.
Next Step: Deepen Your Knowledge
Closed-End Funds aren’t new, but we believe they’re uniquely built for today’s income challenges. Advisors who take the time to understand them can deliver differentiated value to clients.
For a deeper dive into how CEFs work, their risks, and how they compare to ETFs and mutual funds, download our free guide:
Closed-End Funds: Why Financial Advisors Should Consider Them for Income Portfolios
Discover how this often-overlooked structure can help you deliver more resilient, income-focused portfolios.
Disclosure:
© 2025 Morningstar, Inc. All rights reserved. The Morningstar Rating™ is for the Class A only; other classes may have different performance characteristics. The rating is not a recommendation to buy, sell, or hold the fund. Morningstar does not guarantee its accuracy or completeness and is not responsible for damages or losses arising from any use of this information.
Investors should consider the Fund’s investment objectives, risks, charges, and expenses before investing. The prospectus, containing this and other information about the Fund, should be read carefully before investing. The prospectus is available at the download icon below or by calling 800-711-9164. Current and future holdings are subject to change and risk.
Investments in the Fund are subject to investment risks, including the possible loss of some or all of the principal amount invested. There is no assurance that the Fund will be successful in meeting its investment objective. The Fund is subject to the following additional risks:
▪ Active Trading Risk: Active trading may result in added expenses, a lower return, and increased tax liability. Since the Fund’s advisor engages in high turnover trading strategies, the Fund will have high portfolio turnover rates.
▪ Closed-End Fund Risk: Closed-end funds (CEFs) are subject to investment advisory and other expenses, which will be indirectly paid by the Fund resulting in duplicative fees and expenses. CEFs are also subject to management risk because the advisor to the underlying CEF may be unsuccessful in meeting the fund’s investment objective.
▪ Equity Securities Risk: Equity securities are subject to changes in value, and their values may be more volatile than those of other asset classes. These changes in value may result from factors affecting individual issuers, industries, or the stock market.
More information about these risks can be found in the Fund's prospectus.
Vigilant Distributors, LLC., Member FINRA/SIPC. There is no affiliation between Modern Capital Management Co., including its principals, and Vigilant Distributors, LLC.
- No Bank Guarantee
- May Lose Value
- NOT FDIC-INSURED