Main Thesis
The purpose of this article is to evaluate the Nuveen AMT-Free Quality Municipal Income Fund (NYSE:NEA) as an investment option at its current market price. NEA is a fund I continued to recommend at the beginning of the year, and I was quite disappointed with how it held up during the sell-off. Despite its investment grade focus, the market punished quality and risk alike. However, I remained invested, and now that the market is recovering, I am looking to add to my position.
The reasons for doing so are straightforward. Muni bonds have a strong track record in terms of steady income and little credit risk. With interest rates pushing lower, NEA's tax-exempt income stream above 4% is desirable. Further, while state and local governments will have liquidity concerns going forward, the Fed has announced support for the muni market, which will limit the downside risk. Finally, I see higher taxes in the near future, providing a boost to the muni sector in two ways. One, it will increase the attractiveness of tax-exempt income, and two, it will provide municipalities with additional revenue that should help restore faith in this very important sector.
Background
First, a little about NEA. It is a closed-end fund with an objective "to provide current income exempt from regular federal income tax and the alternative minimum tax applicable to individuals, by investing in an actively managed portfolio of tax-exempt municipal securities". Currently, the fund trades at $13.76/share and pays a monthly distribution of $.0535/share, which translates to an annual yield of 4.31%. NEA is a fund I have owned for a while and continued to recommend at the start of the year. Unfortunately, even quality muni bonds were not immune to the sharp sell-off that started in late February. However, now that markets have recovered, NEA has actually proved to be a useful hedge, as the
