Market access

Tap closed-end funds for private market access

As advisers and investors scramble to find higher yields and generate more income outside the bond universe, closed-end funds (CEFs) are gaining more and more attention.

While the landscape is not as big as that of mutual funds and index funds, there is still a dizzying array of options. With the Invesco CEF Income Composite ETF (NYSEARCA: PCEF), investors don’t have to choose individual closed-end funds. PCEF offers market participants more benefits beyond its eye-catching 6.64% dividend yield.

The CEF structure allows “greater flexibility in the types of investment strategies that can be used and helps portfolio managers stay invested for the long term without a hard sell. In addition, managing the daily flow of investors can strain a portfolio manager and impact a fund’s performance in two ways: 1) they may be forced to hold short-term cash investments which may be a drag on returns; and 2) they have less flexibility to invest in less liquid securities, including private investments, which may limit upside potential. CEFs are freed from the constraints of daily liquidity influenced by investors, potentially increasing income and returns, ”according to BlackRock research.

The rise of private markets

PCEF, which tracks the S-Network Composite Closed-End Fund Index, clearly offers an attractive return with a portion of its income driven by options strategies. Meanwhile, his farms present an attractive structure. Yet the history of the ETF is not all about this.

The thesis of the CEF and that of the PCEF are enriched by the rise in power of private markets. Investing in the private market generates more buzz due to impressive returns and lower correlations compared to traditional assets. However, it is difficult to access for many investors. CEFs can help you.

“There has been a shift in wealth creation to private markets, however, private investment is generally difficult to access. We believe that exposure to private equity is important because it gives investors access to all the opportunities. For example, over the past 20 years, the number of private companies has increased by 41% while the number of public companies has decreased by about 36%, ”adds BlackRock.

While standard daily liquidity funds offer no access to the private market and no way to avoid hard sell, CEFs do. Conversely, CEFs tick these boxes alongside private funds, but private funds typically lack low fees, low minimum investments (no minimum is required with PCEF), tax simplicity, and liquidity. ETFs.

Not all components of the PCEF provide access to private markets, but as the demand for this exposure increases, it is also possible that the ETF will react over time.

For more news, information and strategies visit the ETF Education channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.