Closed-end funds, which operate on limited share capital and high leverage, are known for their active management and relatively high returns. With the United States’ economic recovery showing signs of deceleration, the Reddit community Wallstreetbets (WSB) has been discussing the following funds over the past week: Blackrock (NYSE:BLK) Municipal 2030 Target (NYSE:TGT) Term (BTT), John Hancock Premium Dividend (PDT), and Wells Fargo (NYSE:WFC) Advantage Funds – Wells Fargo Global Dividend Opportunity (EOD). So, let’s take a closer look.A closed-end fund raises a fixed amount of capital through an initial public offering, following which the shares are traded in secondary markets. These funds use the offering’s proceeds to invest in various securities, aligned with their long-term objectives. Closed-end funds are typically actively managed, with portfolio managers monitoring the markets closely to make changes in their holdings to maximize returns. These funds cannot administer secondary offerings to raise additional capital, or buyback existing shares floating in the markets. Shares of closed-end funds often trade at a premium or discount to their net asset value (NAV), and their holdings tend to be highly leveraged.
The high volatility in the stock markets as the United States’ recovery pace slows down with lower-than-expected jobs growth recently is motivating investors to turn again to fixed-income securities. As Dow futures turn negative following a disappointing April jobs report, popular Reddit forum Wallstreetbets (WSB) is showing interest in several closed-end mutual funds because they tend to generate higher returns than open-end funds.
Close-end funds Blackrock Municipal 2030 Target Term Trust (BTT), John Hancock Premium Dividend Fund (PDT) and Wells Fargo Advantage Funds – Wells Fargo Global Dividend Opportunity Fund (EOD) are frequently mentioned in the popular Reddit chatroom.