State Of The CEF Market Update

Nov. 10, 2020 6:37 AM ETCMBS, MVF, MVT, MYD, NID, NMCO13 Comments


  • We look at some broad CEF trends that have developed over the past year, such as performance relative to ETFs, as well as discount weakness.
  • In our Income Portfolios, we continue to approach CEF allocation with a margin-of-safety perspective, while also diversifying into senior securities.
  • We also highlight a few Muni CEFs continuing to trade at attractive discount valuations: MVF and MYD.
  • Looking for a helping hand in the market? Members of Systematic Income get exclusive ideas and guidance to navigate any climate. Get started today »

This article was originally published on November 5.

With the election results nearing closer, we take this opportunity to give a quick update of the CEF market and focusing on some trends that have caught our eye. In particular, we discuss the curious case of CEF underperformance of ETF sector benchmarks and touch on the persistent discount weakness across the space. We also take a look at the Muni sector given its longer duration amid sharp moves in risk-free rates.

Our main takeaway is that while pockets of the CEF space look attractive, relatively rich underlying asset valuations and a gloomier macro picture due to a split government keep us focused on a margin-of-safety approach. At the same time, we are diversifying across preferreds and baby bonds - something that has helped control the volatility of our Income Portfolios without sacrificing yield.

Though many of our watchlist Muni CEFs have revalued considerably in the last few days, a few still stand out, such as:

  • BlackRock MuniYield Fund (MYD)
  • BlackRock MuniVest Fund (MVF)

Some Broader CEF Trends

If we take a very big lens perspective and see how equity and fixed-income CEF price and NAV total returns have done over the past year, we get the following chart. We see very sizable drops in March, particularly in equity CEF prices, which makes sense given their more volatile portfolios as well as sharp discount widening. This is followed by a steady grind higher to levels that don't quite reach or just barely beat their starting levels from a year ago. This is, arguably, a bit surprising given that most major ETF asset class proxies are well in the green for the year.

Source: Systematic Income

Some of this is undoubtedly due to a few outlier sectors such as MLPs that have

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This article was written by

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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. 

Disclosure: I am/we are long NMCO, NID. 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.

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