Main Thesis
The purpose of this article is to evaluate the PIMCO Municipal Income Fund III (NYSE:PMX) as an investment option at its current market price. PMX is a CEF invested in municipal ((muni)) debt but without the single state focus of many PIMCO offerings. While I still see plenty of value in buying state-specific muni CEFs, investors who do not reside in either California or New York have limited choices when it comes to maximizing tax advantages. Such investors would likely be better served buying a multi-state muni fund, such as PMX. With this in mind, I feel PMX currently offers the best value proposition of the remaining three multi-state options from PIMCO.
In 2020, I am selecting PMX as the best choice for now, specifically because of its relative valuation with its PIMCO sister funds. While all suffered recent distribution cuts, the share prices have held up well. This is likely because muni debt remains in demand, and the yields offered are still competitive even with the recent decrease. Further, the sector as a whole has plenty of bullish momentum, given its recent strength and trend in the market. Also, muni debt tends to receive a lot of interest when a new year begins, with one reason being that investors begin to think of tax season. When investors begin to calculate what they will owe in April, it often gets them thinking on how to minimize future taxes, prompting demand for tax-free products. Finally, I expect the tax story to remain positive for munis post-2020, regardless of a Democratic win or President Trump re-election.
Background
First, a little about PMX. It is a closed-end fund with a primary objective "to seek current income exempt from federal income tax." Currently, the fund trades at $12.53/share and pays a monthly distribution of $.046/share, which translates
