by InteractiveAdvisors
by InteractiveAdvisors
Strategies

Buying the dips in Closed End Municipal Bond Funds (MNP, NFP)

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Disclaimer: Dan owns MNP and NPF in his Covestor Tax Advantaged Income model

October 22, 2010: The below text is licensed to Covestor Ltd. (“Covestor”), by Dan Plettner. Such text may be disseminated only by Covestor. Dan Plettner invests and receives income for securities research, including “buy-side” research. Dan licenses his own real time trading data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses Dan Plettner’s data to create the Core, Long Short Opportunistic, Tax Advantaged Income, MLP Direct Ownership, and Taxable Income models for its clients. Dan’s words should not be misconstrued as investment advice.

The rally in Closed-End Municipal Bond Funds has taken a breather, if not corrected as money has poured into the most traditional risk assets since late August. Even the price of my current favorite Closed-End Municipal Bond Fund, Western Asset Municipal Partners, Inc (MNP) has fallen from $15+ at the end of August to a price below $14.50. In looking at Closed-End Municipal Funds, I’m obviously looking at buying income. Having said that, I am focused on total return and do not like to overpay.

When even my favorites have fallen, I tend to believe it is a good time to put sidelines money to work. I had built a 7%+ sidelines position in the account managed for Tax-Advantaged Income on August 31st. Today, I put money to work in Nuveen Premier Municipal Income Fund (NPF) at $14.24.

NPF had closed August 31st at $14.82. More importantly the discount to Net Asset Value (“NAV”) has widened and I continue to be attracted to its Undistributed Net Investment Income (“UNII”). This data can be verified at CEFConnect.com, sponsored by Nuveen who happens to manage this holding.

I could be wrong, but I believe that intrinsic demand for Municipal Income is likely to persist even if equities do well. There may be a long-standing domestic distaste for equities, and it would appear that the rates offered by savings accounts are unlikely to improve anytime soon. I expect income assets will continue to be in demand.

AUTHOR

Dan Plettner
Dan Plettner
For more than 14 years I've focused my investing and research efforts on Closed-End Mutual Funds, called CEFs. They represent an alternative way to invest in stocks and bonds. CEFs frequently trade at a discount relative to the price of fund’s underlying portfolio, which I personally see as a way to own stocks and bonds at a discount to their underlying value. I previously worked as a closed-end fund product specialist at Morgan Stanley. More recently, I provided independent closed-end fund research to institutional investors. I have written more than 50 articles regarding closed-end funds and am frequently quoted in the media. My goal is to invest in funds that I believe offer a favorable mix of risk versus potential reward. I attempt to earn a profit when the gap between the market price and the net asset value of a fund narrows.

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