ICI Research – The Closed-End Fund Market in 2005

Equity Funds Fuel Recent Asset Growth

Washington, DC, March 22, 2006 - Assets in closed-end funds grew to $276.3 billion in 2005. This marks the fourth consecutive year that closed-end fund assets rose, and this recent increase is largely fueled by equity funds, according to research released today by ICI.

Closed-end fund assets have grown 93 percent since year-end 2000 when total assets stood at $143.1 billion. For much of the past decade, bond funds represented the vast majority of assets in closed-end funds. However, equity funds have fueled about half of the recent growth in closed-end fund assets. From year-end 2000 through 2005, assets in closed-end equity funds increased by $68.0 billion, or 186 percent, while assets in closed-end bond funds rose by $65.2 billion, or 61 percent.

“Millions of US households invest in closed-end funds and these funds are an important component of their diversified investment portfolios,” said ICI Chief Economist Brian Reid. “Our research finds that these households tend to be experienced investors who own a range of equity and fixed-income investments.”

The Institute reported that an estimated 2 million U.S. households held closed-end funds in 2005. The majority of closed-end fund investors also own individual stocks and mutual funds and share many characteristics with stock and mutual fund owners. For instance, owners of closed-end funds, stock and mutual funds all tend to be college educated and have household incomes above the national average. However, the research finds that closed-end fund investors display certain distinctive characteristics, such as having much greater household financial assets than either individual stock or mutual fund owners.

The research also indicated that a growing number of closed-end funds are being offered to investors, especially within the last few years. At the end of 2005, there were 634 closed-end funds, up from 482 at the end of 2000. As with assets, equity funds accounted for about half of the increase in the number of closed-end funds during this five-year period.