Tom's Life Bits

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**"the reason for buying a closed end fund, an ETF, or an open end fund, is diversity in holdings, management skill level and hopefully less drawdown in a market turn than owning individual stocks."**
 
I'll accept diversity of holdings, but don't buy the last two reasons given.

I thought that the concept of "manaement skill level" was a virtually debunked concept in that skill level is almost never such that the management outperforms any kind of index over a period of years.
 
Here are a couple of sources and quotes from a seeking Alpha article on the matter.  Google will give you many more sources of studies and facts to support the assertion below.
 
1. The S&P 500 Index consistently outperformed 98% of mutual fund managers over the past three years and 97% over the past 10 years, ending October 2004. In two 30-year studies, the S&P 500 outperformed 97% and 94% of managers. In addition, only about 12% of the top 100 of managers repeat their performance in the following years. Therefore, it is not possible to consistently pick next year’s hot mutual fund manager.
From IFA.com

2. Over fifteen years to 1998, on a pre-tax basis the Vanguard S&P 500 index fund outperformed 94% of general equity mutual funds and 97% on a post-tax basis. The post-tax average difference in annual performance was 4.2%.
~From Common Sense on Mutual Funds, by John Bogle
As far as "hopefully less drawdown in a market turn than owning individual stocks" is concerned, I have two major issues without really giving this a lot of thought.  First, and especially when a fund is bought at NAV or at a premium to NAV, then any downturn in the market will very likely cause an exaggerated downturn in that fund as it both drops in NAV value and as it moves from premium to NAV to a discount to NAV or as the discount to NAV widens.  Also, the price of CEFs is related to the demand for such funds.  Over the past few years there has been an explosion of CEFs and an explosion of ETFs which compete for investors in each area of focus.  IMO the effect of that proliferation of funds is to dilute investor interest in any particular fund and to make all of the funds not less but intead sharply MORE likely to drop further as compared to say holding a basket of individual stocks that one likes and is held by a fund of interest.

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