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NBB: A More Attractive Taxable Muni Fund


  • CEF discounts held in on Tuesday despite sharp moves lower in risky assets.
  • We recently recommended BBN, however, it is unfortunately no longer trading at bargain prices and another taxable muni fund - NBB is more attractive.
  • We like NBB for its attractive discount valuation, decent historic returns, controlled price drawdowns and high distribution coverage.
  • This idea was discussed in more depth with members of my private investing community, Systematic Income. Get started today »

Risky assets tumbled again on Tuesday, despite bold moves by the Fed and other central banks. The CEF market, however, remained firm in discount terms, we suspect, because income investors continued to snap up bargains. We recently recommended the Blackrock Taxable Municipal Bond Trust (BBN) in another article, however, the sharp rally in BBN makes it no longer a bargain. Another fund in the sector, however, has remained relatively cheap - the Nuveen Taxable Municipal Income Fund (NYSE:NBB). We like the fund for its discount valuation, decent historic returns, controlled price drawdowns and high distribution coverage.

But First, A Bird's Eye View Of The CEF Market

In this section, we take a look at how the overall market has performed since the drawdown began. The price behavior across CEFs has on aggregate been as expected: as risky assets have dropped and volatility risen, CEF discounts have widened and NAVs have fallen. While this is true in aggregate, there are two puzzles that stand out to us.

The first puzzle has to do with how discounts have performed so far across sectors. The highest-volatility sectors have seen the least amount of discount widening - not something we would have expected. This is likely because these sectors have dropped the most in price terms and have attracted more investor demand while those sectors that held in well were most likely sold to raise cash.

Source: ADS Analytics LLC, Tiingo

This view agrees with the chart below which shows that sectors with the biggest price drops have seen their discounts outperform.

Source: ADS Analytics LLC, Tiingo

Let's see how the average CEF sector discount has moved through this sell-off. Mostly the picture below makes sense - as equities sold off from reduced risk appetite, CEF discounts have widened. One day where the two did not move in sync

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This article was written by

ADS Analytics profile picture
Income investing across BDCs, CEFs, ETFs, preferreds, baby bonds and more.

At Systematic Income our aim is to build robust Income Portfolios with mid-to-high single digit yields and provide investors with unique Interactive Tools to cut through the wealth of different investment options across BDCs, CEFs, ETFs, mutual funds, preferred stocks and more. Join us on our Marketplace service Systematic Income.

Our background is in research and trading at several bulge-bracket global investment banks along with technical savvy which helps to round out our service. 

Analyst’s Disclosure: I am/we are long NBB. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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