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The 2026 January Effect on Closed-end Funds
Since 1996, closed-end fund (CEF) discounts have narrowed the most in January compared to every other month.1 This historical pattern, though not a guarantee of future results, is known as the January Effect and happens about 90% of the time.2 It can present an opportunity for investors to benefit from strategically investing in closed-end funds, an investment vehicle that behaves quite differently from your average equity investment. In January 2026, the pattern held as discounts for the All CEF PGI narrowed 59 bps from -5.54% to -4.95%.
A CEF3 is a publicly traded investment company that raises capital through an initial public offering (IPO) and becomes “closed” after the capital is raised at the end of the IPO. At that point, there are generally no more available shares to be issued. CEFs typically provide monthly or quarterly distributions, which can come from interest, dividends, capital gains, and return of capital.
The funds’ investments in securities add up to its Net Asset Value (NAV). But unlike mutual funds or ETFs, the NAV of a CEF may differ from its market price. A CEF trading at a premium means the market price is above the NAV.4 A CEF trading at a discount means the market price is below the NAV.4 An investor would generally want to purchase a CEF when it is trading at a discount to its NAV because each dollar invested purchases more than a dollar of net assets. Purchasing at a premium could benefit the investor if the premium is expected to increase. The market price for a CEF is based not on the NAV, but on supply and demand, which is determined by several factors.
CEF premiums and discounts are driven by market sentiment from macro conditions, volatility, and interest rates; fund-specific factors and characteristics like the distribution rate; the fund manager’s track record and its firm’s reputation; and investor sentiment, such as the perception of fund performance, interest in a specific CEF investment strategy, and, as it relates to the January Effect, year-end tax loss harvesting.4
To a large extent, the January Effect for CEFs can be explained by tax management.5 Toward the end of each calendar year, many investors sell loss-making shares to offset their gains made elsewhere in order to neutralize some of their capital gains tax liability. Investors then buy the shares back in January at the start of the new tax year. This increase in demand raises the market price of CEFs, meaning they may trade at a premium, or at least the discount narrows. That’s why the January Effect can sometimes present opportunities for investors to capitalize on the narrowing discount.
If investors are interested in CEFs, but like the ETF wrapper, TrueShares RiverNorth Active Income ETF (CEFZ) assets are primarily allocated among CEFs and ETFs. CEFZ seeks to generate an attractive level of income combined with a unique, uncorrelated source of alpha* from closed-end fund discount trading. The investment objective is to provide long-term capital appreciation and income, which may be supported by periods of discount narrowing, such as that seen during the seasonal January Effect.
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- Morningstar, Rivernorth (see chart above).
- https://aicalliance.org/2026-outlook-john-cole-scott-on-what-26-holds-for-closed-end-funds
- https://www.cefconnect.com/closed-end-funds-definition
- https://www.blackrock.com/us/individual/education/closed-end-funds/insights/reasons-to-use-closed-end-funds
- https://www.schroders.com/en-us/us/individual/insights/does-the-january-effect-really-exist/
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