Closed-End Funds (CEFs) are professionally managed investment trusts that invest in securities of specific asset classes or geographic regions. CEFs raise money to invest by an initial public offering (IPO). Once the IPO is completed, a CEF is typically closed to new assets. CEFs trade on securities exchanges such as The Toronto Stock Exchange (the TSX).

There are two prices to consider when reviewing a CEF. The first is the Net Asset Value (NAV), which is calculated by dividing the total net assets in the CEF by the number of shares outstanding. For Canada Trust Income Investments, this is calculated monthly and the most recent is provided in its quarterly and annual reports.

The second price that needs to be considered is the market price that investors are buying and selling the CEF. The market price for Canada Trust Income Investments can be determined at any time the TSX is open.

The NAV and the market price are rarely the same for reasons that can only be explained by changing market conditions and investor sentiment. A CEF often trades at a discount to its NAV, but may also trade at a premium. The premium/discount phenomena is a key advantage of investing in CEFs for the following two reasons: (1) potential for the market price to rise, and (2) potential for higher yield.

A CEF that invests in bonds and trades at a discount is of particular interest to bond investors, because the fund pays out income that is generated by the underlying assets irrespective of the market price. Thus the effective yield can be much higher when compared with a similar open-ended mutual fund.

Like an open-ended mutual fund or an exchange traded fund, a CEF invests in many securities. So if one security does not perform well, the value of the CEF portfolio is not severely impacted.

CEFs cannot be redeemed, and new shares are rarely issued. The fund manager is able to focus just on managing money, and does not have to be concerned with selling assets to meet net redemptions or investing inflows if the market is deemed to be pricey.