Although closed-end funds predate open-end mutual funds and exchange-traded funds, they operate in murky waters that can be tough for many individual investors to navigate. But this relative newcomer to the mutual-fund universe has generated impressive gains for its investors.

We love almost any type of investment fund, but closed-end funds rarely make an appearance in these pages. Prone to excessive leverage, frequently trading at steep premiums to net asset values and often paying hefty yields by cannibalizing their own assets, closed-end funds are fraught with risks that can be difficult for individual investors to identify.

That’s largely due to their structure. Like mutual funds, they hold a portfolio of securities in which investors buy an interest. But unlike open-end mutual funds, which always trade at their net asset value, closed-end funds issue a fixed number of shares that trade on an exchange–the market sets a share’s value, not the underlying holdings. And many closed-end funds are thinly traded, making them easy to buy but tough to sell.

But that doesn’t mean there’s a dearth of opportunities for savvy investors; closed-end funds are rapidly regaining lost ground.

Patrick Galley of RiverNorth Core Opportunity (RNCOX) is one investor who dives deep to uncover opportunities in these muddy waters.

Running a tactical asset-allocation fund, Galley has the leeway to allocate 40 to 80 percent of the fund’s assets to equities and 20 to 60 percent to fixed income. The fund’s portfolio currently allocates about 40 percent of assets to equities, 35 percent to fixed income and 14 percent to hybrid vehicles. The remainder is in cash.

Although there’s nothing unusual about how the fund has divided its resources, particularly given the market environment, what makes it unique are the vehicles it uses to gain that exposure.

Rather than trading in individual stocks and bonds, Galley uses a value-driven approach to invest in a variety of funds, including closed-end offerings.

That allows Galley to generate profits for his investors in two ways. First, if he invests in sectors that find their way into favor, he generates capital gains the old-fashioned way. Second, if discounts on the closed-end funds he holds shrink, he generates gains regardless of movements in their underlying net asset value.

Accordingly, management works to identify closed-end funds that needlessly trade at discounts to net asset values and have a potential catalyst to close the discount gap. When those types of opportunities can’t be found, management then invests in a sector exchange-traded fund (ETF) or holds cash on the sideline.

This strategy enables the fund to gain exposure to an impressive array of quality stocks and bonds at fairly steep discounts.

Two of the fund’s top holdings are excellent examples of this approach. Clough Global Opportunities Fund (AMEX: GLO) holds stocks such as Microsoft (NSDQ: MSFT), Cisco Systems (NSDQ: CSCO) and even the SPDR Gold Trust (NYSE: GLD) mentioned in the Rukeyser Interview. RiverNorth has gradually picked up those shares at an average discount of about 7 percent to net asset value.

It’s a similar situation with NFJ Dividend, Interest & Premium Strategy Fund (NYSE: NFJ), which holds substantial positions in GlaxoSmithKline (NYSE: GSK), Boeing Company (NYSE: BA) and Diamond Offshore Drilling (NYSE: DO). RiverNorth purchased shares in this closed-end fund at an average discount of 16 percent.

The fund has two major drawbacks from our point of view: It’s young and expensive. But those aren’t deal-breakers. We typically don’t look at funds without a three-year track record, particularly those with quirkier strategies. However, the fund operates in a unique space, and it’s extremely capable management team appears to have what it takes to exploit inefficiencies in the closed-end market.

Even without sales loads, the fund carries a heavy price tag, sporting an expense ratio of 2.45 percent. On top of the annual 1 percent management fee and an annual 12b-1 charge of 25 basis points, fundholders are also on the hook for the management fees charged by the various funds in which it invests.

Nevertheless, the fund still generates impressive returns for investors. As the name implies, RiverNorth Core Opportunity should be regarded as more of an opportunistic investment. Its appeal really doesn’t stem from its allocation strategy–much cheaper options abound in the moderate-allocation category. But it is an excellent opportunity for investors to profit from the fairly tricky closed-end fund arena, particularly if they have the patience to stick with the fund for at least a year or two.