Douglas G. Ober, Chairman, Adams Express Company and Petroleum & Resources Corporation President, Closed-End Fund Association

Leaders of the closed-end fund industry met at the New York Stock Exchange this month for the annual industry conference of the Closed-End Fund Association.  Each year, the Association brings together executives of closed-end funds to review our progress in serving fund shareholders and address our challenges with renewed focus.

One triumph to celebrate was a recent high water mark in the issuance of closed-end funds last year, owing to the demand for fixed-income closed-end funds. Countering that success was the decline in closed-end analyst coverage by Wall Street, including the discontinuation of industry coverage by Merrill Lynch, a development that generated more calls to the Association than any other topic this year.

A variety of industry observers and fund executives addressed issues ranging from the competitive landscape and industry trends, to strategies for addressing closed-end fund coverage and distribution strategy. Here’s a very short synopsis of what they said.

Don Cassidy, noted senior research analyst at Lipper, Inc., provided an incisive view of trends and observations of the industry. Fund performance was often better than some believe, he said, and more funds should present their long-term performance in “mountain charts” and other illustrations that reinforce superior investment performance. Investors will remain risk averse, he predicted, and perhaps closed-end funds can meet their needs with a variety of product structures, including a balanced fund.

Avi Nachmany, director of research and executive vice president of Strategic Insight, had some very interesting observations for our industry. He minimized the competition to open- and closed-end funds posed by Exchange Traded Funds (ETFs), saying that ETFs were experiencing slow growth as an alternative to mutual funds. Favored more by institutional investors than retail investors, he said that perhaps only 10% of flows to ETFs can be attributed to retail investors.

Strategies for addressing closed-end coverage were offered by a panel moderated by Dr. Albert Fredman, professor of finance at California State University. The panel included Charles Kadlec, managing director of J&W Seligman, David Schachter, vice president of Gabelli Funds, and Richard Strickler, managing director at Aberdeen Asset Management. The panel discussed engaging independent analysts to boost coverage of the industry, hosting online manager “chats” and  developing communications materials that would aid financial advisors in marketing closed-end funds to their clients. There was much agreement that analysts can add value by attracting investors in general to closed-end funds and, in particular, to identifying value in the more complicated analysis of fixed-income funds.

Howard Schneider, a marketing consultant and founder of Practical Perspectives, offered several insights on navigating the advisor marketplace. He suggested that closed-end funds joint venture with asset management firms that could offer access to their network of distribution in exchange for the opportunity to manage some fund assets. But such access does not come cheap, he noted, adding that the cost of sales distribution is edging higher, as sales organizations seek to improve margins at the expense of product manufacturers.

The challenges for closed-end funds continue to be met with fresh approaches and new initiatives. I announced to the attendees that CEFA is putting together a working committee to pursue the initiatives raised at the conference and to work for improved analyst coverage to keep the merits of investing in closed-end funds visible to brokers, financial advisors, and their clients.

We welcome your questions or opinions in response to webservices@cefa.com.