These BlackRock CEFs Yield As Much As 11% Taxable Equivalent, Trade At Large NAV Discounts

|
Includes: BNY, BQH, MNE, MPA, MUJ, MYJ
by: Mark Gottlieb

Summary

BlackRock now has 6 municipal closed-end funds among the highest 10 by discount to NAV.

The discounts to NAV on these BlackRock funds have only been higher less than 1% of the time during their fund lifetimes, during the 2008 market meltdown.

Large activist firms are becoming active in the muni CEF space and I believe the discounts to NAV should begin to revert back to the mean by early next year.

BlackRock (BLK) is the world's largest asset manager with $6.29 trillion in assets under management as of December 2017. Despite superior short and long-term performance based on net asset value (NAV), BlackRock municipal closed-end funds now account for 6 of the highest discounts to NAV among all municipal closed-end funds. They offer taxable equivalent yields of up to 11% in a portfolio of quality municipal bonds with juicy CEF discounts of up to 17% to NAV. Their discount to NAV have only been higher less than 1% of the time of their fund lifetimes dating back to the 1990s in many cases, during the 2008 market meltdown.

In my latest conversation with Jonathan Diorio VP of BlackRock Closed-End Funds and Stephen Minar VP of BlackRock Closed-End Funds early this month, Mr. Diorio said Mr. Cavanagh took my points in my Suggestions For BlackRock After Discussion With Chairman to the BlackRock Board of Directors. Mr. Diorio said they acknowledge it is hard times with the discounts to NAV widening on their municipal closed-end funds and my thoughts would again be addressed at the next board meeting in November. If BlackRock’s interests are truly aligned with its shareholders, I’d like to hear something shareholder friendly for BlackRock municipal bond closed-end funds before year-end. See below data and charts which is from CEFconnect.com as of 10/30/18:

Let’s look at each of these 6 BlackRock closed-end funds among the top 10 municipal bond closed-end funds by discount to NAV (BlackRock Muni NY Intermediate Duration (MNE), BlackRock MuniHoldings NJ Quality (MUJ), BlackRock MuniYield NJ (MYJ), BlackRock MuniYield PA Quality (MPA), BlackRock NY Municipal Bond (BQH), and BlackRock NY Municipal Income (BNY) now have discounts to net asset value of 16.25 to 17% vs. 9.09% for the average municipal closed-end fund:

Fund Name

Effective

Baseline

Distribution

Distribution

Discount /

Since Inception

Since Inception

Z-Score

Leverage %

Expense

Rate

Frequency

Premium

Rtn on NAV

Rtn on Price

1 Year

BlackRock Muni NY Intermed. Du

37.55%

1.14%

3.96%

M

-17.00%

4.78%

3.68%

-1.7

BlackRock MuniHoldings NJ Qty

39.66%

0.92%

5.11%

M

-16.85%

5.62%

5.07%

-1.6

Nuveen NJ Quality Muni Income

39.46%

0.98%

5.22%

M

-16.57%

5.80%

4.87%

-1.8

Neuberger Berman NY Inter Muni

41.28%

1.31%

4.24%

M

-16.52%

4.55%

3.38%

-1.5

EV NY Muni Bond II

41.36%

1.39%

4.73%

M

-16.49%

4.85%

3.62%

-2

BlackRock MuniYield NJ

39.77%

0.93%

5.73%

M

-16.47%

6.29%

5.67%

-1.5

Neuberger Berman CA Inter Muni

41.69%

1.28%

4.47%

M

-16.35%

5.08%

3.90%

-1.2

BlackRock MuniYield PA Quality

40.13%

0.94%

5.38%

M

-16.34%

6.07%

5.58%

-2.2

BlackRock NY Municipal Bond

39.70%

1.37%

4.41%

M

-16.28%

6.19%

5.06%

-1.1

BlackRock NY Municipal Income

39.86%

1.11%

4.53%

M

-16.25%

6.03%

4.80%

-1.4

MNE BlackRock Muni NY Intermediate Duration: 3.96% tax-free yield (as much as 7.82% taxable equivalent yield depending upon tax bracket)

Price

NAV

Discount

Current

$12.11

$14.59

-17.00%

52 Wk Avg

$12.91

$15.02

-14.11%

52 Wk High

$13.83

$15.54

-10.21%

52 Wk Low

$12.01

$14.56

-17.57%

MUJ BlackRock MuniHoldings NJ Quality 5.11% tax-free yield (as much as 10.12% taxable equivalent yield depending upon tax bracket)

Price

NAV

Discount

Current

$12.34

$14.84

-16.85%

52 Wk Avg

$13.38

$15.29

-12.53%

52 Wk High

$14.64

$15.84

-6.87%

52 Wk Low

$12.27

$14.79

-17.09%

MYJ BlackRock MuniYield NJ 5.73% tax-free yield (as much as 11.33% taxable equivalent yield depending upon tax bracket)

Price

NAV

Discount

Current

$12.68

$15.18

-16.47%

52 Wk Avg

$14.26

$15.62

-8.80%

52 Wk High

$16.32

$16.16

2.45%

52 Wk Low

$12.56

$15.13

-17.04%

MPA BlackRock MuniYield PA Quality 5.38% tax-free yield (as much as 9.49% taxable equivalent yield depending upon tax bracket)

Price

NAV

Discount

Current

$12.39

$14.81

-16.34%

52 Wk Avg

$13.60

$15.32

-11.28%

52 Wk High

$14.61

$15.88

-6.53%

52 Wk Low

$12.35

$14.75

-16.44%

BQH BlackRock NY Municipal Bond BlackRock MuniYield PA Quality 4.41% tax-free yield (as much as 8.76% taxable equivalent yield depending upon tax bracket)

Price

NAV

Discount

Current

$12.53

$14.96

-16.28%

52 Wk Avg

$13.45

$15.51

-13.32%

52 Wk High

$15.13

$16.15

-6.20%

52 Wk Low

$12.42

$14.90

-16.64%

BNY BlackRock NY Municipal Income 4.53% tax-free yield (as much as 8.89% taxable equivalent yield depending upon tax bracket)

Price

NAV

Discount

Current

$11.80

$14.09

-16.25%

52 Wk Avg

$13.17

$14.58

-9.77%

52 Wk High

$14.95

$15.13

0.14%

52 Wk Low

$11.77

$14.05

-16.25%

I am dumbfounded trying to find a better conservative, liquid bet for investors in higher tax brackets with the equity markets near a 10-year peak and interest rates already up substantially off the lows. I believe municipal closed-end funds have been weak performers this year as interest rates have risen from minuscule levels and have been hammered of late as their predominantly individual investors have sold to lock in tax write-offs for 2018. I like to buy when there is blood in the streets (like now) with the largest discounts to NAV for municipal closed-end funds since the market meltdown of 2008. I truly believe the discounts to NAV on municipal bond-funds will start reverting to the mean by early next year with or without large activist firms that are becoming very active with municipal closed-end funds. I also believe we may be closer to a peak on the Fed rate hike cycle than is generally expected thanks to damage from the tariffs and we already are in the longest economic upswing in my lifetime.

Disclosure: I am/we are long MUJ AND MYJ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.