James Colby, senior municipal strategist at Van Eck Global, looked at the current market environment and argued that while we are heading toward a Federal Reserve interest rate hike, the muni debt market may have already priced in a Fed hike. Additionally, the recent sell-off may have put additional pressure on the munis market, pushing muni CEFs’ prices further below their NAVs.
Mazzilli argues that the ability to buy assets at a discount to NAV may raise yield on share prices.
CEFs are also able to utilize leverage to augment distributions, which helps the securities generate big yields, as can be seen with XMPT.
“CEF’s fixed number of shares allows effective use of leverage,” Mazzilli added.
Michael Cohick, ETF product manager at Van Eck Global, also pointed out that the muni CEF-related ETF provides diversification by assets, strategies and fund managers. Specifically, XMPT includes a group of CEFs from money managers including Nuveen Fund Advisors 42.1%, BlackRock Advisors 24.5%, Invesco Advisors 12.2%, Eaton Vance Management 4.7%, Putnam Investment Management 2.7%, Dreyfus Corp 2.0%, Western Asset Management 1.6%, Bank of New York Mellon 1.3% and Massachusetts Financial Services 1.3%.
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