Joe Eqcome

Closed End Funds Lag the Market Advance

Garrett

I use several sources for data collection: Thomson, Lipper and Morningstar. All the data is inputted into a proprietary database model I’ve developed along with other investment metrics.

With regards to munis premium/discounts, I have 222 national and single state muni CEFs in the data base. The current discount is 1.68% versus an historical discount of 7.9%. Approximately 73 are trading at an average premium of 6.2%. So, this supports your contention of deterioration in comparable historical valuation.

I have done a sample of 36 single state munis and all but 3 have increased their monthly distribution in the past 12 months. I believe this may different from your observation. I’m hoping to complete this study in the next couple of weeks.

So, the question is: are munis overvalued and vulnerable to a price correction based on historical valuations? This answer may be yes, but it may be the wrong question.

Muni valuation may be more a function of current relative valuations than historic ones. While the spreads between munis and treasuries have narrowed from historic highs, they still seem compelling. Investors can still get 5% yield and a taxable equivalent of 8% in the highest tax bracket. Additionally, the prospect of higher taxes is also a current incentive for muni investors.

At this point, for CEF investors it more of stocks picking opportunity rather than a sector call for muni CEFs.

Joe Eqcome

Closed End Funds Lag the Market Advance

Dan,

Please do me the honor of a clinic on the issue(s).

Would you be a buyer of SRO or SRQ?

Joe Eqcome