
Craig EpplerFebruary 26, 2020
What is an Interval Fund?
An interval fund is an investment vehicle that periodically offers to repurchase its shares from shareholders, generally every three, six, or 12 months, instead of offering the daily liquidity available in an open-end fund. Interval funds provide investors with access to less liquid investments while attempting to provide better risk-adjusted returns. These investments include commercial real estate, consumer loans, debt, and numerous other illiquids.
Characteristics of an Interval fund
We typically use open-end funds in our portfolios. Open-end funds use pooled investor money and can issue an unlimited number of shares. Priced daily, open-end mutual funds invest primarily in stocks and bonds and allows investors to contribute or withdraw money from the fund on a daily basis. Interval funds are registered under the Investment Company Act of 1940, and have a few important characteristics:
Interval Fund Yields
The limited liquidity structure of an interval fund allows fund managers to invest without the burden of daily ongoing redemptions. By removing this liquidity constraint and allowing the manager to invest in alternative types of assets, investors may receive significantly higher returns than many open-end mutual funds.
Interval Fund Advantages
Interval Fund Risks
Bottom Line
While interval funds are not risk-free, they can be a nice complement to traditional stocks and bonds as part of a diversified portfolio. They provide a differentiated risk-return profile that frequently offers investors yields that are higher than most other mutual fund options. The limited liquidity of an interval fund encourages investors to focus on the long-term nature of this investment.
HFA recently added interval funds in some of our model portfolios late last year. If you have questions, call your advisor at 610-651-2777.