ESRwannabe
Full time employment: Posting here.
- Joined
- Mar 19, 2010
- Messages
- 889
I have just started investing into CEFs and have made some observations.
First, if you can buy into a CEF at a large enough discount you can all but eliminate the expense ratio difference between a CEF and an ETF covering the same area.
Here is my logic:
Let's say we have a CEF fund A that has an expense ratio of 1% and an index ETF fund B that has an expense ration of .10%. At first glance you would say that A is much more expensive to own than B, but that is not necessarily true as A is a CEF which happens to currently sell at a discount of -12%. In such a case, fund A is actually cheaper than B... Observe...
A 1% higher ER means that a fund is more expensive by 1% for the entire year.... there are 12 months in a year... so if you can purchase something at a -12% discount that is equivalent to -1% for each month of the year. Therefore...
A -12% discount is the equivalent of a -1% to ER...
In my example the expense ratio of A is actually 0% and the ER of fund B is .10%...
First, if you can buy into a CEF at a large enough discount you can all but eliminate the expense ratio difference between a CEF and an ETF covering the same area.
Here is my logic:
Let's say we have a CEF fund A that has an expense ratio of 1% and an index ETF fund B that has an expense ration of .10%. At first glance you would say that A is much more expensive to own than B, but that is not necessarily true as A is a CEF which happens to currently sell at a discount of -12%. In such a case, fund A is actually cheaper than B... Observe...
A 1% higher ER means that a fund is more expensive by 1% for the entire year.... there are 12 months in a year... so if you can purchase something at a -12% discount that is equivalent to -1% for each month of the year. Therefore...
A -12% discount is the equivalent of a -1% to ER...
In my example the expense ratio of A is actually 0% and the ER of fund B is .10%...
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