Closed End Fund Arbitrage

I have looked at this stuff but never found anything worth doing for me. Those things can trade at their big deviations from NAV for a long time. I looked at a number of CEFs vs their NAVs over the past few years and a 10% did not seem like a big discount to me; by which I mean, if I had tried to buy every holding at this discounted rate or better, the returns weren't particularly impressive. Individual results varied across everything I looked at. I would attribute the return you're talking about to individual variance.

FWIW- I would be very wary of holding a partial replication of the CEF's portfolio- for fear of the possibility that a large portion of the CEF's returns might be due to the fat-tailed behavior of a small portion of its holdings.

There are a number of academic papers on the topic of CEF discounts/premia, which address the issue more thoroughly than I am doing. You can find many of these papers on the internet. They are generally pessimistic.

It may nevertheless be possible to make excess returns with some variation of this strategy, with realistic expectations and a lot of hard work. Good luck.
 
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