MNP: Attractively Valued For Tax-Free Income

Summary

  • Muni bonds provide tax-free income to investors, MNP provides a way to gain diversified exposure to many positions.
  • The fund has paid monthly distributions since its inception back to 1993.
  • MNP is undervalued compared to its typical trading range, partially due to a merger that its parent.
  • This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Get started today »

Written by Nick Ackerman, co-produced by Stanford Chemist

Western Asset Municipal Partners Fund Inc. (NYSE:MNP) is a closed-end fund that has been providing investors monthly income for years. The discount is currently larger than its historical average. This is at a time when many other municipal funds are trading higher than their average due to investors seeking safety during 2020's volatility. One reason for this is that Legg Mason, the parent company of Western Asset, was merged with Franklin Templeton (BEN). This appears to have made investors a bit uncertain of the funds that go along with this merger. I believe this results in an opportunity that investors can take advantage of.

Municipal bonds are great for investors seeking tax-exempt income; this generally means higher income earners are most benefited. That isn't always the case, though, as they can provide attractive income from an investment that is quite safe. Relatively speaking, municipal bonds haven't experienced large amounts of defaults. This involves all sorts of economic downturns and hardships. This is partially why there has been strength from these assets this year. Volatility has spiked up and this has left investors looking for sustainable and safe income.

Buying into a CEF like MNP can also serve as a great way to diversify many muni bonds together while at the same time allowing for the professional management of the portfolio of assets. The fund's investment objective is to "seek high current income exempt from regular federal income tax, with capital appreciation as a secondary objective." They boast an "emphasis on team management and extensive credit research expertise to identify attractively priced securities."

Western Asset | Legg Mason Asset Management

(Source)

The fund is smaller at about $242 million in assets. Of these assets, approximately 34.74% is from a preferred share offering. This does create a more expensive form of leverage. Though they are auction rate

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This article was written by

Nick Ackerman profile picture
11.41K Followers
CEF/ETF income and arbitrage strategies, 8%+ portfolio yields
Nick Ackerman is an avid student of the markets and has been investing in his own accounts for over 14 years. He is a former Financial Advisor and has previously qualified for holding Series 7 and Series 66 licenses. These licenses also specifically qualified him for the role of Registered Investment Adviser (RIA), i.e., he was registered as a fiduciary and could manage assets for a fee and give advice. Since then he has continued with his passion for investing through writing for Seeking Alpha, providing his knowledge, opinions, and insights of the investing world. His specific focus is on closed-end funds as an attractive way to achieve income as well as general financial planning strategies towards achieving one’s long term financial goals.

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I provide my work regularly to CEF/ETF Income Laboratory with articles that have an exclusivity period, this is noted in such articles. CEF/ETF Income Laboratory is a Marketplace Service provided by Stanford Chemist, right here on Seeking Alpha.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Additional disclosure: This article was originally published to members of the CEF/ETF Income Laboratory on October 28th, 2020.

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