This is always the risk of closed funds. I have said it a...

This is always the risk of closed funds.

I have said it a million times over the past few years - closed funds are a massive risk.

Yes, you will have people (managers) talking up their advantages. More worryingly they will neglect the very important disadvantages.

Most commentators will state the sway between discounts and premiums have always been a fixture of closed funds. What they fail to recognise is the bulk of money now flows into cheaper passive ETFs.

All active funds, particularly closed funds like this, are suffering as a result. Put simply the market demand for LICs/LITs is shrinking. As a result, we have a raft of managers initiating all sorts of short term measures to correct the huge discounts. A buy back is nothing but a short term bandaid.

In the last few years we have seen every manager who has had a few good years, try to flog a closed fund (LIC). It is in their nature to try to lock up as much capital as humanly possible. Who wants to deal with redemptions?

Hopefully shareholder pressure will force a lot of these funds - which suffer from persistent discounts - to either be wound up or converted to an open trust. I am not saying Magellan are at this stage yet.

I still shake my head at the amount of LICs on the ASX with a market cap of less than 100 million. You can't possibly have the necessary liquidity to sustain a closed fund with such a small capital pool.

I wonder how many of those who bought more closed fund units in Magellan realise the 7.5% discount isn't that generous at all.

There is no shortage of hate for closed funds - that's for sure.