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Which of the following is/are the most likely similarity(ies) between exchange-traded funds and closed-end funds?
I. Both types of funds are passively managed to match a particular index.
II. In both types of funds, the market price of shares and the net asset value (NAV) can differ significantly.
III. Both types of funds can be sold and purchased on the open market.
- A. III only
- B. I & III only
- C. I & II only
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The correct answer is A.
ETFs and closed-end funds are sold and purchased in the exchange market rather than from the fund itself. ETFs are passively managed to match the index while closed-end funds are actively managed. In closed-end funds, the market price of shares and the NAV differ significantly, whereas ETFs are designed to keep their share price close to the NAVs.
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