The index’s members are primarily high-quality investment-grade municipal bond CEFs. The index receives a yield enhancement from the currently 84% of assets in leveraged CEFs in addition to the index rules designed to give a greater weight to CEFs selling at discounts to their NAVs. While leverage may enhance the yield, it can also magnify losses. As of March, 14, 2014, the components of the index traded at an average discount of -7.02% and the index’s dividend yield was 7.41%. This index yield is the pre-tax equivalent of 12.26% for investors subject to the maximum Federal Tax rate of 39.6% and the pre-tax equivalent of 10.29% for those subject to the Federal tax rate of 28%.
The following chart shows the history of the average discount for the S-Network Municipal Bond Closed-End Fund Index and how the current level compares to historical levels.
S-Network Municipal Bond Closed-End Fund Index: Premium/Discount — 6/30/2011 – 3/31/2014
Source: S Network, as of March 31, 2014. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting our website. Historical performance is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made.
Please note that the information in this post represents the opinions of Paul Mazzilli and not necessarily those of Van Eck Global. These opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results, or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. MUNI NATION is a trademark of Van Eck Associates Corporation. Please note that Van Eck Global offers municipal bond exchange-traded funds.