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Some investment vehicles are complicated; some, unloved. Closed-end funds are complicated and, by the majority of financial advisors, unloved indeed.

But that doesn’t mean CEFs can’t make money for clients, especially sophisticated, tax-driven retirees and others who seek income.

Nearly two-thirds of investors report that their financial advisors have never mentioned CEFs to them, and less than 9% own a CEF, according to a summer 2018 survey of high net worth and mass-affluent investors conducted by Nuveen and Forbes Insights.

The actively managed income-producing funds, with a market total of about $225 billion in assets, certainly aren’t alone in trying to buck the trend to passive investments, particularly ETFs. But most advisors do little, if anything, to give them a boost: FAs aren’t motivated to recommend CEFs since typically commissions or loads cannot be earned except at the time the CEF originates in its initial public offering.

Another reason for FAs’ paucity of interest: CEFs are issued with a fixed number of shares; so, unlike open-end mutual funds, these funds lack growth potential.

Yet advisors who are dedicated to recommending investments in their clients’ best interest find that that mission is incentive enough to suggest CEFs, where appropriate.

“There isn’t much in it [CEFs] for the traditional advisor, but there’s a lot in it for their clients,” says Erik Herzfeld, president of Thomas J. Herzfeld Advisors, a Miami-based RIA that has specialized in closed-end funds for 34 years.

The CEF universe comprises about 550 funds. Municipal bonds are the largest segment.

“Now is the time for advisors to look at closed-end funds,” Herzfeld says. “They’re a great way for clients looking for tax-exempt yield. Municipal bond funds are very attractive now because of their price dynamics. The discount has widened and is much larger than usual. If you buy a closed-end fund now, you get a really nice tax-free yield of 5.25%.”

(Related: How Independent Advisors Invest Client Assets: Schwab Study)

Publicly traded on exchanges throughout the day, CEFs trade at a discount or a premium to their net asset value, and according to supply and demand, among other factors.

Those two main moving parts: NAV direction and market price movement make CEFs complicated investments. Profits result from selling when the gap between share price and NAV narrows.

The use of leverage by most CEF managers to heighten returns acts to increase volatility and risk.

During the last two months, CEFs were down because of market volatility and rising interest rates that made discounts widen. Flattening of the yield curve contributed to lower income.

“When closed-end funds look the worst, that’s the best time to buy,” argues John Cole Scott, chief investment officer of Richmond, VA-based Closed-End Fund Advisors, specializing in CEFs since the mid-1980s. “If you invest in a beat-up sector, historically, there’s an upside in performance; and you can appreciate the asset.”

Herzfeld even sees a “golden lining” in the perceived CEF cloud.

“There’s lots of hope,” he says. “This is a great opportunity because the discount widened, and the yield [on municipal bonds] is significantly higher because of that. At the beginning of the year, the yield was 5%. Now you get that really nice tax-free yield of 5.25%.”

Herzfeld explains: “When the discount widens, it’s like a coiled spring. If you push really hard, it tends to go back the other way when the volatility calms. If that happens, there’ll be some good money to be made next year – as long as the bond market goes sideways.”

Available is an array of income-focused CEF opportunities in stocks, bonds, REITs, MLPs, commodities and options, among other vehicles. The first CEFs that traded in the U.S. date to 1893, back when the country was an emerging market, Herzfeld notes.

CEFs are best suited for experienced, sophisticated investors “who understand the moving parts” as well as for other tax-driven investors, according to Scott. Many advisors working with his firm – most of them are fee-oriented — have 10%-30% of their clients’ portfolios allocated to CEFs. One of Scott’s model portfolios yields 6%-7% after taxes in any U.S. tax bracket, he says.

Scott’s CEF clients are mainly retired tax-driven investors in New York, Chicago, California and Florida.

Investors should be made aware that some CEF sectors have high expense ratios and that managers’ use of leverage can increase fees.

But the biggest pitfall to CEFs is investors not fully understanding that discounts can widen. “The discount relationship can change dramatically,” Scott points out.

“The other thing that gives people heartburn,” Scott says, “is that there can be a dividend-policy reduction that will change future cash flows.”

So here’s a fair question: How do CEFs perform in a recession? Some experts predict one is on the horizon.

“A recession adds value,” Herzfeld insists. “Municipal bond funds can do well. The Fed [will] stop raising interest rates. People will be scared of the stock market and warm up to bonds.”

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