The Move To Allow CEFs To Convert To ETFs

The ETF Professor has found a couple of press reports that mention the conversion of closed-end funds (CEFs) into ETFs and thinks this is a compelling idea. In fact, PowerShares has filed to list several CEFs that has an automatic conversion feature should the CEF meet certain criteria.

Specifically, a conversion will be initiated "after 180 days of trading, should the fund trade at a median 3% discount for 30 consecutive trading days," according to PowerShares.

PowerShares has filed to list three auto-coversion CEFs. They are: The PowerShares Bank Loan Opportunity ACCE, FundPowerShares Preferred ACCE and the FundPowerShares Commodities Opportunities ACCE Fund.

Another press report suggests the Adams Express (NYSE: ADX) CEF should be converted to an ETF to unlock shareholder value and given that it already has over $1 billion in assets, Adams Express would be the biggest player in the CEF-turned-ETF space.

The report notes that CEFs have converted to ETFs in the past and with some success. The Claymore/Raymond James SB-1 Equity (NYSE: RYJ) is one example. RYJ is up nearly 46% year-to-date.

Since ETFs typically trade at smaller discounts to net asset value (NAV) than CEFs do, a conversion feature would likely benefit many CEF shareholders that see their funds languish below NAV.