• Managers continue to occasionally convert closed-end funds (CEFs) into open-end structures to eliminate discounts to NAV, often to satisfy activist investors. Recently, First Trust began the process of converting $1.4 billion in four CEFs into open-end ETFs.
• We examined 37 CEF to open-end (mutual fund and ETF) conversions from September 1997 to November 2023. Based on our findings, three months post-conversion, the original CEF’s AUM declined by 38% on average, fees dropped by 35%, and average revenue decreased by 63%.
• To stem outflows post-conversion to an open-end fund, fee waivers are often implemented. While partially effective, these waivers significantly reduce revenue, sometimes more than if no waivers were implemented.

Converting a Closed-end Fund to an Open-end Structure: Average Change

Source: Morningstar, FUSE Research