However, investors should not focus on discount alone. Fundamentals, including investment manager philosophy and track record, along with the outlook for the underlying asset classes, should come first. And, above all, investors must consider how a fund fits in with their broader portfolios.
CEFs—and, more broadly, active management—may present a compelling opportunity for investors seeking to weather the coronavirus storm. Unlike passive funds, active managers have the flexibility to react thoughtfully to supply-chain disruptions and market shocks such as this. Active managers are able to follow an investment process that buys high-quality companies with strong balance sheets and an ability to cover their dividends. Passive investments, on the other hand, are bound by the indices they track. Before making any decisions, investors must consider their individual investment needs, but we believe that CEFs may be an attractive opportunity when confronting market volatility.
Christian Pittard is group head of product opportunities for Aberdeen Standard Investments.