24/7 Wall St. has been viewing closed-end bond funds trading at big discounts to the net asset value (NAV). These closed-end funds (CEFs) are very different from traditional mutual funds, and they are different from exchange traded funds (ETFs). The key difference is this ability to trade at deep discounts of high premiums to the NAV, as well as the notion that they are at a fixed size in the number of shares they have.
With all the value investors looking for new ideas ahead of a fed funds rate hike cycle, and with stocks trading at all-time highs, many investors might be more interested than normal in assets trading at a discount to what they are really worth. Investors in high effective tax brackets are still looking at the tax-free municipal bond sector for opportunities. After all, there are some massive yields out there and investors do not generally have to pay the Affordable Care Act 3.8% fee (tax) on their coupon payments from municipal bonds.
There are many caveats in a review on closed-end funds, with many reasons as to why some of these may have big discounts or premiums to the NAV. 24/7 Wall St. also included the stated discount to NAV that was registered at the Closed-End Fund Association (CEFA) website. This is to help smooth out any delayed data on discounts to NAV from the prior week’s report.
Bank of America Merrill Lynch recently highlighted some of the top CEFs covering bonds and fixed income, and the first part of this report focused more in-depth on the closed-end fund sector and focused on mostly taxable bond funds. Of the 43 CEFs covered in the Merrill Lynch report, 24/7 Wall St. focused on four top muni bond CEFs trading at deep discounts to NAV.
Leveraged National Muni CEFs
Blackrock Municipal Income Trust (NYSE: BFK) trades around $13.44, with an implied yield of 6.7%. Its discount was most recently seen as -7.9%, versus a historical average discount to NAV of -2.1%. This CEF has a 52-week trading range of $13.28 to $14.99, it has a CEFA discount listed as -6.97% and the fund has roughly $660 million in total assets.
BlackRock MuniEnhanced Fund Inc. (NYSE: MEN) was near $10.99, with a 6.6% yield, a discount of -8.4% to NAV and a historic discount of -4.3%. Its 52-week range is $10.86 to $12.14. The CEFA stated discount was -8.06% and the fund has about $358 million in total assets.
Lightly Leveraged National Muni CEFs
Eaton Vance Municipal Income Trust (NYSE: EOT) was trading at $20.71, in a 52-week range of $19.70 to $21.74, with a yield of 5.0%. Its stated discount to NAV was -8.1%, versus a three-year average of -6.7%. The CEFA site showed a discount to NAV of -6.63%, and the fund has some $344 million in total assets.
Non-Leveraged National Muni CEFs
Nuveen Municipal Value Fund Inc. (NYSE: NUV) was trading at $9.55, with a 4.3% yield and a 52-week range of $9.28 to $10.23. Its stated discount to NAV in the Merrill Lynch report was -5.0%, versus a three-year average discount of -3.1%. The CEFA discount to NAV was shown to be -3.68%, and this closed-end fund is much larger than most with almost $2.1 billion in assets.
For a comparison of the CEF discounts and yields before the effect of tax rates and the like, the ket ETF in municipal bonds is the iShares National AMT-Free Muni Bond (NYSEMKT: MUB), with a yield of 2.67% currently, a $108.03 price and a 52-week range of $107.58 to $112.20. The iShares National AMT-Free Muni Bond ETF also has almost $5 billion in assets.
Individual state muni CEFs were not included to keep this review more focused. For those looking for key data on CEFs and what additional factors have to be considered, 24/7 Wall St. went very in-depth on that matter in the larger review.