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

We’ve all heard the old advertising slogan, “An educated consumer is our best customer.” That philosophy equally applies to the world of investing, and is especially important as the number of investment opportunities increases. There is a growing need for solid, well-reasoned analysis of various investment vehicles to help investors make the best choices. But tight times and narrowing profit margins on Wall Street have led to less research coverage and that is affecting our industry.

Closed-end funds (CEFs) comprise a growing and vigorous investment class, yet the coverage by Wall Street research departments has remained steady or has declined. Because most CEF research groups now cover Exchange Traded Funds (ETFs) as well, the ability of securities analysts to follow each fund or offering has been stretched near to the breaking point. While we had a sense of the trend marked by Merrill Lynch’s withdrawal from industry coverage two years ago, we decided to dig deeper.

A survey by my firm, The Adams Express Company, sought to determine the level and depth of industry coverage by Wall Street firms, and how they preferred to receive information and communications from the investment companies they cover.

Not surprisingly, we found that closed-end funds are not only sharing the spotlight with ETFs, they are sharing the Street’s analytical resources as well and the result has been a drop-off in the amount of coverage. Some examples:

• The size of research groups allocated by brokerage firms to CEFs typically number from one to three analysts covering thousands of domestic, international and fixed income funds, as well as ETFs.
  
  
• Some research groups pick their spots: covering, for example, only fixed income funds or specialized funds such as REITS. 
  
  
• Analysts are doing more with less. While hundreds of issues have been added to the mix, the number of securities analysts working for the major investment banks has declined. The result is that fewer firms are writing CEF reports or providing individual recommendations.
  
  
• Time is the analysts’ most precious tool. CEFs can no longer assume widespread coverage of their conference calls or webcasts. Analysts prefer e-mail and websites to more time-consuming forums. Analysts have less time to delve into individual fund holdings and limit their availability for meetings or events to those that promise significant news or broadly useful insights. 

As CEFs and ETFs continue to compete for scarce analyst resources, investors and funds need to find new creative ways to work the communications channel. Savvy investors can get access to the same information that analysts do, thanks to advances in consumer financial sites and regulations that ensure broad distribution to the public of material information by public companies. As a complement to efforts to improve the information provided to analysts, funds need to focus on enhancing direct company-investor links using the range of technology-driven tools now available. Investors can virtually visit any fund now at its website, and CEF companies can communicate with investors at the stroke of an e-mail “send” button. Investment companies and investors need to build on these existing technologies.