Marty Fridson, editor of Forbes/Fridson Income Securities, is a leading specialist in dividend investment strategies; here he looks at two closed-end funds, one for tax-free income and the other for multi-sector exposure.
Nuveen Taxable Municipal Income Fund (NBB) has a primary objective to provide current income through investment in taxable municipal securities. NBB largely invests in a diversified portfolio of taxable municipal securities, with taxable market yields and municipal market risk.
Up to 20% of the portfolio may include investments in other securities, including tax-exempt municipal issues and government securities. As of 06/30/22, sector allocation largely consisted of Limited Tax Obligation (35.5%), Utilities (20.7%), Transportation (19.6%), and General Tax Obligation (8.9%).
More than 75% of the portfolio was rated A or higher, with 45.6% rated in the AA category. Top state exposures at 06/30/22 included California (23.5%) and New York (18.0%). The fund’s holdings are well diversified, individually accounting for less than 5% of the portfolio.
NBB’s market price total return performance has been solid historically. However, with persistent economic challenges, higher interest rates, and yield curve inversion, fixed income and equity markets have been sorely compromised. As a result, NBB’s market price total return for the YTD period ended 06/30/22 was -18.85%.
Our opinion is that municipal closed-end funds and mutual funds have been beaten up and oversold to a great extent. Look for better returns over the second half of 2022 into 2023.
Distributions are taxed on a variable basis and have historically included net investment income and return of capital, but may also include realized gains. This fund is suitable for low- to medium-risk taxable portfolios. Buy at or below $23.50 for a 5.51% annualized yield.
Wells Fargo Multi-Sector Income Fund was recently renamed Allspring Multi-Sector Income Fund (ERC). ERC seeks a high level of current income, consistent with managing domestic interest rate risk exposure.
The fund invests primarily in a mix of non-investment grade corporate debt securities, including bank loans, emerging market debt, and mortgage-backed securities (MBS). Under normal market conditions approximately 30%-70% of total assets are allocated to non-investment grade debt securities and 10%-40% allocated to MBS, while 10%-30% is allocated to investment-grade credit.
Over 90% of the total portfolio is typically invested in fixed income securities, with greater than 50% rated non-investment grade. Asset class exposure as of 05/31/22 was largely composed of Corporate Credit (70.88%), and Sovereign and Government Related Risk (19.37%). The top five holdings as of 05/31/22 were non-U.S. Sovereigns and government-related credit risk.
Total return in 2022 has been challenged, as current market conditions in the fixed income and in particular high yield have been very volatile. The economy and a potential recession and higher interest rates have contributed to sub-par returns.
The fund reported a YTD market price total return for the period ended 06/30/22 of -23.53%. We believe market pressures have contributed to an oversold condition. We look for ERC to show positive traction over the second half of 2022.
This investment is suitable for medium- to high-risk portfolios. Monthly distributions are variable and are composed of net investment income and realized gains and may include return of capital. Buy at $13.50 or lower for an 8.08% current yield.
