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Barron's: Munis the best value in fixed income

Comments (20)
  • Petrarch
    , contributor
    Comments (980) | Send Message
    good call on the munis
    Burton Malkiel agrees with them
    11 Jan 2014, 10:01 AM Reply Like
  • The Long Tail of Finance
    , contributor
    Comments (977) | Send Message
    Munis have been treating me well for many years. The tax break and relatively high yields have been hard to beat.
    12 Jan 2014, 09:00 AM Reply Like
  • Tack
    , contributor
    Comments (14296) | Send Message
    Top-eight Muni CEF's selling at largest discounts to NAV (all above 12%):


    11 Jan 2014, 11:40 AM Reply Like
  • GaltMachine
    , contributor
    Comments (1524) | Send Message


    How do you define "top"?


    Are you recommending these?


    11 Jan 2014, 01:55 PM Reply Like
  • Tack
    , contributor
    Comments (14296) | Send Message


    Those are the CEF's with the largest discounts to NAV at this time. One must also compare relative yields, leverage, history and other factors to decide what's preferable for themselves.


    You may check out all the above and more at
    11 Jan 2014, 02:00 PM Reply Like
  • King Rat
    , contributor
    Comments (1000) | Send Message
    Tack, a lot of muni funds in general had a negative return to NAV over the past 12 months. Federal debt has seniority over muni debt because the federal government can bail itself out. If federal (30y) rates rise to 5% in 2 years, expect rates to rise (and value to fall) for muni funds.


    Several of your top listed CEFs are fairly illiquid, with trading volume under 100k/day which is not end of the world, but not overly comforting either.


    If you expect a 7% return/year but a 15% drop in price over 2 years, you might be better to be holding cash. Funds with a shorter average duration may be safer as interest rates normalize.
    11 Jan 2014, 04:43 PM Reply Like
  • Tack
    , contributor
    Comments (14296) | Send Message


    They're not "my" top funds. They're the CEF's, presently, with the greatest discount to NAV, nothing more implied. Of course, the funds had negative returns in the past twelve months; that's why they may be potential value plays, depending on one's economic and interest-rate outlook.


    In considering muni's one has to decide whether rates are immutably due to trend higher, or whether there's been some overselling in apprehension of the same, as might be suggested by the large discounts from NAV reality. If rates do not rise, or if the economy would show any signs of a pause, the recent discounts --which actually represent even larger moves because these funds were selling at premiums -- could quickly reverse, leading to a nice short-term gain for muni funds.


    As you suggest, it's necessary to examine all fund variables, including leverage, duration, whether distributions are managed or not, quality of portfolios, etc. They may be a trade, an investment, or neither.
    11 Jan 2014, 05:00 PM Reply Like
  • omarbradley
    , contributor
    Comments (964) | Send Message
    the war effort and trying to rebuild the ACA from scratch will get "top billing" so to speak. best asset class ever in history...but without any recovery in the economy at large and WITH a boom on Wall Street it's really hard to see where the liquidity for buying is going to come from. how do a price in default risk? it's not like the Federal Government is going to have any problems funding itself as they swallow up the bulk of "growth" in this jobless prosperity in the form of income, capital gains and excise taxes (the ACA.) i fail to see where there will be any money left over even with...thankfully yet almost sadly...the biggest energy boom in this nation's history.
    11 Jan 2014, 08:09 PM Reply Like
  • NYer1
    , contributor
    Comments (1779) | Send Message
    Very true Tack.
    I LOVE this sector (loved it more during December when Muni CEF's were even more depressed due to tax selling).
    The past couple of weeks have actually been quite positive with Muni CEF's recovering nicely from their lows of 2013.
    There are still values to be had in this sector but one must be cautious in buying indiscriminately.
    Some of the Muni CEF's have actually bounced back to PREMIUMS and buying them 9or for that matter holding them) can't be justified as long as there are plenty of nicely discounted alternatives managed by the very same managers.
    To list a few : PMN, PMX,BPK,BKN,EVN
    11 Jan 2014, 11:05 PM Reply Like
  • NYer1
    , contributor
    Comments (1779) | Send Message
    Here are a few things to consider regarding the CEF muni market :
    The long term average yield of Muni's vs. Treasuries is about 85% - they currently yield around 105-110% (that means you get paid about 25% more in terms of the historical standard or conversely that Muni's are relatively cheaper by about 25% from their norm vs. Treasuries).
    Add to that the nice discounts to NAv you are able to buy Muni CEF's at, the better shape of most municipalities and states fiscally, the more responsible way they tackle long term issues like pension and healthcare obligations these days and fiscal reforms they have been implementing over the past few years and you get a very nice recipe for a significant putperformance by Muni's.
    Now, as for the concern of rising interest rates, indeed it hould be a concern, like many other factors, BUT...Muni's are credit instruments unlike Treasuries and credit instruments do not have full correlation to Treasuries.
    In addition, history has shown us that not every rising rate environment culminates in negative returns to credit instruments.
    Add to that the fact that long/intermediate rates have already shot up strongly over the past 6-7 months (as the markets over reacted to the Bernanke now infamous "Taper Tantrum" speech) and I think there is a very strong possibility for Muni's to provide respectable tax free returns of over 5% (can be equal to almost 8.5% a year in tax equivalent rates in some states/cities) a year for the next 3-4 years (especially in the discounted CEF arena).
    With these kind of after tax returns I like Muni's much better than stocks at current valuations
    11 Jan 2014, 11:16 PM Reply Like
  • GaltMachine
    , contributor
    Comments (1524) | Send Message


    Thanks for the clarification - I suspected as much. That's one of those adjectives with investment connotations :)
    13 Jan 2014, 09:04 AM Reply Like
  • Charlieboy Stevens
    , contributor
    Comments (85) | Send Message
    After working and analyzing many different stocks, I retired. One of the benefits of my retirement is the fact that I am no longer prohibited from investing in any stock because I no longer have any conflict of interest mandated by my employer where I worked analyzing many different companies for potential listing purposes over my 39 years with the same employer. My capital gains from my investments in several different stock not only has been fun but also has generated huge capital gains, such as ISRG, IMMU, and others. I do not trade stocks but may sell one of mine if its ales and earnings are not up to my standards. I currently own shares in seven stocks, all of which do business in the medical field by developing new and improved products.
    11 Jan 2014, 01:22 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9999) | Send Message
    Keep an eye on the muni bond insurers as well.
    11 Jan 2014, 05:50 PM Reply Like
  • Value Doc
    , contributor
    Comments (789) | Send Message
    I dispute the characterization of growth MLPs like EPD and PAA as "fixed income". EPD grew its distributable cashflow by 37% year-over-year. How anyone can compare that to a stagnant utility or telecoms stock is beyond me. Dividend stocks (utilities, telecoms, staples) have stagnant businesses and are generally quite overvalued at the present time. Also, EBITDA is quite obviously an inappropriate measure when comparing MLPs to C-corps as MLPs do not pay corporate income tax. They should be comparing EBIDAs instead.


    On payouts, it's true that many MLPs are barely covering their payouts, but those generally yield 7% plus rather than the 3% you get in the typical dividend stock.
    11 Jan 2014, 08:30 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (4147) | Send Message
    There are several leveraged muni funds from Bill Gross' PIMCO. Some of these offer 7-8% yield compounded monthly. I like PCQ on dips below 13. It's tax free in CA.
    11 Jan 2014, 09:39 PM Reply Like
  • Derek A. Barrett
    , contributor
    Comments (3534) | Send Message
    California is now running a surplus, and the Gov. wants to create a rainy day fund, and also work on bringing down alot of the debt issuance.


    Great job to Gov. Brown who knows what fiscal responsibility is all about and gets results.


    Long MUC

    12 Jan 2014, 06:39 AM Reply Like
  • Davephd
    , contributor
    Comments (890) | Send Message
    One question in my mind is the eventual effect of Puerto Rico bonds on the CEF muni market. I bet a lot of them own a lot of PR bonds.
    12 Jan 2014, 08:30 PM Reply Like
  • NYer1
    , contributor
    Comments (1779) | Send Message
    Part of the reason they were pushed to ridiculous discounts over the last few months of 2013..all in the price a long time ago.
    PR could be the big positive surprise of 2014 in my opinion..its demise is far from being the foregone colclusion it has been by the press, they are doing decent restructuring and taking brave steps to rectify longstanding structural problems there and there is a good possibility the market will start recognizing it later this year.
    Forst step id raising some money in a long term bond issue over the next 30-60 days - that will probably avert a potential downgrade by Moody's to junk.
    12 Jan 2014, 11:03 PM Reply Like
  • NYer1
    , contributor
    Comments (1779) | Send Message
    What a difference a few months make.
    Muni's are far from being cheap these days vs. treasuries.
    After having a great start for 2014, many muni CEF's have gone closer to NAV (some back to premiums above NAV).
    At the current environment, one should cull funds that trade expensively vs. NAV and potentially move to cheaper valued funds (after having conducted DD, of course, with respect to other material factors like credit quality in the portfolio, leverage,duration risk and earning power among others).
    Muni's aren't cheap anymore but some Muni CEF's still present decent values for the long term investor.
    19 Mar 2014, 01:16 AM Reply Like
  • Scooter-Pop
    , contributor
    Comments (3293) | Send Message
    Bought 18 positions in the Muni Bond CEF & ETF space. Third week of buying.
    16 Jan, 04:12 PM Reply Like
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