Through the market rally in August and the early part of September when stocks began their correctio...
5 Muni Bond Funds with High Yields at a Discount
08/17/2018 5:00 am EST
If you're looking for tax-free yields, municipal ("muni") bonds can provide you with 5%+ distributions that Uncle Sam won't touch, asserts income expert Brett Owens, editor of Contrarian Outlook.
With rates rising, it is a bit tricky to make savvy buying decisions at the moment. But income investors buying smartly today are banking 5%+ yields - and paying as little as 88 cents on the dollar!
For quick profits, it's best to buy munis after mini-panics. They seem to happen every year or two, presenting us levelheaded contrarians with safe yields for cheap.
For longer-term income investors looking for steady monthly paychecks, the best time to buy munis is usually anytime — especially for those in a high tax bracket.
Buying a closed-end fund (CEF) is even easier than buying individual muni bonds. We simply enter the ticker in an online brokerage account, click the "Buy" button and we've got a fund with a handpicked portfolio of 900+ muni bonds (and monthly distributions to follow).
Our tax-free distributions get even better when we buy at a discount. Because CEFs each have a fixed share count, they can trade above and below their net asset values (NAVs). An 8% discount, for example, means we're buying $1 worth of munis for just $0.92.
Let me give you five muni funds that are bargains today. All five pay 5% or more, are exempt from Federal taxes and trade for a 6% to 12% discount to the value of their underlying bond portfolios.
BlackRock MuniYield (MYD), yielding 5.4% with a discount to NAV of 6.2%
Invesco Value Muni Income (IIM), yielding 5.3% with a discount to NAV of 10.2%
Nuveen AMT-Free Municipal Credit Income (NVG), yielding 5.3% with a discount to NAV of 8.1%
Nuveen Quality Muni Income (NAD), yielding 5.2% with a discount to NAV of 11.9%
Invesco Muni Investment Grade (VGM), yielding 5.1% with a discount to NAV of 10.4%
These funds have also been excellent long-term investments. This is important because, in my experience, past performance is the best indicator of future results in CEF-land.
This is especially the case for munis, where the best managers consistently deliver "alpha" thanks to their unfair advantages (connections and capital) in this less-than-efficient corner of the market.
Related Articles on BONDS
We had a new subscriber point out that the current price on DoubleLine Income Solutions Fund (DSL) i...
Technical outlook on the bond market from Al Brooks....
Al Brooks breaks down the technicals in the long bond....