2014 was a solid year for diversified closed-end fund (CEF) investors. I specifically use the term "diversified" because whether I am writing about CEFs or giving a presentation about the CEF structure, I always encourage investors to diversify across several different categories of the CEF structure in order to attain proper diversification and exposure to many different asset classes. According to Morningstar, the average CEF was up 7.88% last year on a share price total return basis. As always, performance varied significantly depending on the category.

For example, two of the categories I advocated investors have exposure to in my commentary a year ago posted solid total returns. The decline in long-term interest rates, coupled with continued very low leverage cost, was particularly beneficial to long-duration municipal CEFs. Municipal CEFs were up on average 17.80% on a share price total return basis in 2014. Many equity-oriented CEF categories also performed well in 2014, particularly equity funds with an emphasis on U.S. equities. Indeed, according to Morningstar, the average domestic equity CEF was positive by 6.10% on a share price total return basis.

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