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Lack of Research Limits Advisor Use of Closed-End Funds: Aberdeen Study

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Financial advisors say a lack of research coverage and poor information limits their use of closed-end funds, according to a joint Aberdeen Asset Management Inc. and Harris Interactive study released Wednesday.

Aberdeen made the study results available at the Capital Link 10th Annual Closed-End Funds and Global ETFs Forum held Wednesday at the Metropolitan Club in New York, attended by more than 1,000 finance professionals, 70% of whom were financial advisors. Aberdeen was the event’s lead sponsor.

The online survey conducted by Harris Interactive over one week in March polled more than 800 financial advisors in the United States about their closed-end fund (CEF) use across wirehouses, regional brokerage firms and independent wealth managers.

“The most illuminating result of the closed-end fund survey is that more than 75% of financial advisors are hungry for additional research coverage and increased communications from sponsoring asset management firms and other parties,” said Gary Marshall, head of the Americas at Aberdeen, in a statement.

At the forum, ETFS Marketing Senior Vice President Tim Harvey said that closed-end funds have gained a reputation for creating supply-and-demand problems because CEFs have a fixed number of shares outstanding and tend toward higher volatility. And Calamos Investments Chairman and CEO John Calamos conceded that the closed-end market’s challenge is distribution even though it is showing signs of opening up to more investors.

However, Morningstar Closed-End Fund Analyst Cara Scatizzi noted that Morningstar launched CEF coverage in 2010 and began publishing fund analysis in January because of growing investor interest in closed-end funds.

“The biggest benefit of CEFs is that they are exchange traded. They are mutual funds that trade like stocks,” Scatizzi said. “During the financial crisis, when everybody was selling out of mutual funds, closed-end fund investors had to find somebody to buy their shares, which protected the value of CEFs.”

Far from being closed to most investors, CEFs can be bought and sold by individual investors for as little as a few dollars per share, Scatizzi added.

According to the Aberdeen/Harris study, 99% of financial advisors who recommend closed-end funds say these investment vehicles are suitable for a broad array of client portfolios, particularly for individual retirement accounts, post-retiree income generating purposes and general savings or investment accounts.

Listen to a webcast of the Aberdeen Closed-End Fund Survey.

Aberdeen Asset Management PLC, the parent of Philadelphia-based Aberdeen Asset Management Inc., was founded in Aberdeen, Scotland in 1983 and had more than $287 billion of assets for institutions and private individuals as of Dec. 31, 2010.


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