Home etftrends.com Demystifying Closed-End Funds: How & Why They Work

Demystifying Closed-End Funds: How & Why They Work

Closed-end funds (CEFs) can be an integral contributor to portfolio returns, but it’s important to understand how they work.

A closed-end fund is a type of ’40 Act fund that issues a fixed number of shares through a one-time IPO. Following the IPO, these shares are traded on a stock exchange, and no new shares can be created. CEFs mark a stark departure from more traditional mutual funds. This is where shares are created and redeemed continuously, and ETFs engage in a continuous public offering.

The set number of shares is one major reason investors often invest in CEFs, which provide portfolio diversification by investing in market assets that are less liquid.

The fund can use spare cash to keep investing because CEFs don’t need to hold cash for redemptions. More so than open-end funds and ETFs, closed-end funds can use leverage to boost potential returns.

An Experienced Investment Option

The Calamos CEF Income & Arbitrage ETF (CCEF) is actively managed and aims to provide investors access to the many benefits of closed-end funds, including monthly income and a long runway for capital appreciation as the portfolio’s CEFs work their way up from discounts.

Calamos has more than two decades of experience working in the closed-end fund market. This expertise helps the fund managers navigate the market and seek out potentially good deals. CCEF’s strategy is already paying off with good returns. As of May 31, 2024, the fund’s NAV was up 3.90% for the month and up 7.21% since the fund’s inception in January 2024.

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Disclosure Information

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns at NAV reflect the deduction of the Fund’s management fee and other expenses. For the most recent fund month-end performance information, visit www.calamos.com or call 1-866-363-9219.

Before investing, carefully consider the fund’s investment objectives, risks, charges, and expenses. Please see the prospectus and summary prospectus , which contain this and other information and can be obtained by calling 1-866-363-9219. Read it carefully before investing.

An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.   

Additional Information

Risks of investing in the Fund include risks associated with (1) the Fund’s investment in closed-end fund shares; (2) the closed-end funds’ investments; and (3) any other investments of the Fund, including investments in ETFs, BDCs, and derivative instruments. The shares of closed-end funds may trade at a discount or premium to, or at, their NAV. The securities of closed-end funds may be leveraged. As a result, the Fund may be exposed indirectly to leverage through an investment in such securities. An investment in securities of closed-end funds that use leverage may expose the Fund to higher volatility in the market value of such securities and the possibility that the Fund’s long-term returns on such securities (and, indirectly, the long-term returns of its shares) will be diminished.

In addition, closed-end funds are allowed to invest in a greater amount of illiquid securities than open-end mutual funds. Investments in illiquid securities pose risks related to uncertainty in valuations, volatile market prices, and limitations on resale that may have an adverse effect on the ability of the fund to dispose of the securities promptly or at reasonable prices. The Fund may invest in BDCs, which typically operate to invest in, or lend capital to, early stage-to-mature private companies as well as small public companies.

The Fund’s investment in shares of ETFs subjects it to the risks of owning the securities underlying the ETF, as well as the same structural risks faced by an investor purchasing shares of the Fund, including authorized participant concentration risk, market maker risk, premium-discount risk, and trading issues risk. Derivatives are instruments, such as futures and forward foreign currency contracts, whose value is derived from that of other assets, rates or indices. The use of derivatives for non-hedging purposes may be considered more speculative than other types of investments.   

Calamos Financial Services LLC, Distributor   

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE   

Calamos Financial Services LLC
2020 Calamos Court | Naperville, IL 60563
866.363.9219 | www.calamos.com | [email protected]
2023 Calamos Investments LLC. All Rights Reserved.
Calamos and Calamos Investments are registered trademarks of Calamos LLC.

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