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  • Levered Municipal Closed End Funds: A Dislocation Of Price And Value [View article]
    Thank you for reading and commenting. You are correct; the corporate bond funds I mention do carry lower ratings and will most likely experience a higher level of defaults. I am a fan of municipal bonds, based on their ability to repay their bond holders and the tax-free nature of their interest payments. My recommendations are specific to municipal bond valuations, as I feel they are overly optimistic. A well diversified fixed income portfolio can consist of high rated, mid rated and even some low rated bonds. The mix should be specific to the investor, based on their income needs, return expectations and ability to withstand volatility.
    Mar 22, 2012. 01:01 PM | Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Dislocation Of Price And Value [View article]
    Thank you for the comment. With many Closed Ends Funds holding bonds that are callable, NII has been decreasing in certain funds due to municipals refinancing. Great observation.
    Mar 22, 2012. 12:51 PM | Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Dislocation Of Price And Value [View article]
    Thank for reading and asking my opinion. Due to the recent pullback, it seems that unlevered funds got hit much harder, due to their overall lower yields. I think this creates a short term buying opportunity for a 2-3% price recovery plus a 5%+ yield. For investors in higher tax brackets, I recommend a significant allocation towards municipal bonds. I like the closed end market as I feel it tends to be dislocated at times due to the uniqueness of the investment class. You mentioned MUA, which I like due to its average maturity of 12 years. I feel the sweet spot in the yield curve is the 10-15 year time frame. On the low end, you are not compensated in the form of yield and on the long end you are not fairly rewarded for the duration risk you assume.
    Mar 22, 2012. 12:42 PM | 1 Like Like |Link to Comment
  • The Noise In CEF Premium Discount Analysis [View article]
    Excellent commentary. I think can be a great help to many investors. Too often, investors chase the chart, the highest yielding, or the most confident name. This is a great addition to your Weekly Review, thanks for sharing.
    Jan 30, 2012. 08:08 PM | 1 Like Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thank you for reading and commenting. I do see what the Fed is trying to do by telegraphing their actions, however I am not sure that investors are going to accept a sub 4% 20 Year muni bond rate for too long. Comparatively it is superior to many taxable investment when considering the risk and tax-free nature. It is my contention that we may see some pressure that will be exasperated by the leverage in these securities. The separation of NAV and price, combated with some thinly traded securities, will lead to a window of opportunity. So far, I am early on this recommendation, but have a watchful eye.
    Jan 27, 2012. 01:59 AM | 1 Like Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Japan has shown that a 0 interest environment is possible for an extended period of time. The real yield on a short term treasury is negative, unless we begin to see deflation. If we head into another recession, we can see another shift downward.
    Jan 27, 2012. 01:55 AM | Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thanks for reading and the nice comments (and not just because we agree!). I have made several allocation changes and opted for intermediate maturities. The steepness of the 7-12 year space allows pretty good yield and also some appreciation from roll. I believe that investors are far too confident in the Fed's ability to keep interest rates low. The immediate result of QE2 was higher treasury yields, until Europe stole the show and scared the world. As things settle and time passes, I firmly believe, I will be buying these securities back. Because of the leverage, all it take is a small .5% change in investors' yield demand to create an opportunity. We will keep a watchful eye for sure
    Jan 27, 2012. 01:52 AM | 1 Like Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thank you for reading and the kind words. I am actually a fan of allocating some investment capital to the High Yield Muni Space. I think this category is less sensitive to interest rates, due to the underlying credit of the bonds. This also tends to be a very small, illiquid category and should remain a small portion of a portfolio, maybe 5% maximum. I am much more prone to accepting credit risk today than duration risk. I have just authored a new article, which I hope will be posted shortly.
    Jan 27, 2012. 01:47 AM | Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thanks for the comment. Despite the run up in price and NAV, there are many good opportunities is the Closed End space for Munis. Right now, I think many investors are too optimistic on muted inflation and investor demand. It worries me a bit. I have been specifically reducing my leverage and reducing my duration exposure. I would feel much safer getting a 4.3% yield on un-levered PWZ than the 6.3% yield on PCQ with 43% leverage. I think the 2% yield difference does not justify the risk taken with all that leverage. Just my opinion of course.
    Jan 27, 2012. 01:44 AM | Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thanks for the nice comments and especially for sharing your thoughts and portfolio. Having 29% of your portfolio in muni CEF's and only 15% is leveraged is subject to far less price risk of an all levered portfolio. NZF is a solid fund and shares many of the same attributes as the list I covered above. I would be cautious of the 27% of bonds callable this year, as reinvesting at these rates will generally lower the interest received. Looking at the recent 5 years, the fund typically trades at a small discount to its NAV, so no worries there. You could realize the loss and carry forward and switch to a similar fund if need be.

    Based on your portfolio, I think you are OK holding funds of this nature in the proportions you have. I think there is a place in an income centric portfolio for long maturity levered funds. I also recommend a portion in non-levered, shorter maturity bond funds (7-12 year ave maturities), so an investor can move up and down the yield curve to best position based on future expectations. In order to achieve yield, an investor has to take interest rate or credit risk. Interestingly enough, I am interested more in shifting funds to credit risk today than interest rate risk. NMD is a good example of taking credit risk, and may be subject to less price risk as we see the long end of the curve rise. Overall you have shared a very solid portfolio based on your goal of income. Your rebalancing and attitude are to be commended, keep it up!
    Jan 20, 2012. 12:58 AM | 2 Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Glad to hear that someone else made some money too. Sometimes its nice to go against the grain!
    Jan 18, 2012. 10:54 PM | 1 Like Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thank you for your comment. My concerns are not about municipal bonds or their ability to meet their obligations. I agree that investments should be purchased with respect to underlying values and expectations as they pertains to one's financial goals. As stated in my article, I am not recommending anyone eliminate their LMCEFs, but merely reevaluate if your portfolio consists of more than 20%. I have heard many investors tell me that they "don't care" about the price as long as the dividends keep coming. Psychologically speaking, we know the truth is different. What concerns me is the over-allocating to this asset class by many inexperienced investors, who have been chasing return. I am a fan of many closed ends today that are found in other fixed income categories.
    Jan 18, 2012. 10:53 PM | 2 Likes Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thank you for your comment. I am aware of the reasons why CE's purchased and held. The reason I wrote the article was because increased demand for long maturity levered funds. I have noticed several recent separations from NAV causing excellent appreciation in addition to a fantastic yield. What concerns me, is the price decline and volume spike we saw during August. Many income driven investors react poorly to swift losses in value and sell positions. It is my recommendation to reevaluate and consider reducing levered municipal funds in excess of 20% of one's portfolio.
    Jan 18, 2012. 10:40 PM | 1 Like Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    I am willing to pay small premiums for some closed ends due to their unique strategies that are not easy to replicate. First and foremost, I would take a long hard look at the underlying investments and strategy, before making any investment. Although I tend to screen out CE's that are at a high premium, I realize that there can be a long and extreme discrepancy between fund price and NAV, that may never correct. I feel better having funds that trade at a discount, although it doesn't make them immune to losses in volatile periods.
    Jan 18, 2012. 10:17 PM | 1 Like Like |Link to Comment
  • Levered Municipal Closed End Funds: A Cautionary Tale [View article]
    Thanks for reading and compliment!
    Jan 18, 2012. 10:12 PM | 1 Like Like |Link to Comment
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