Up To His Hips in Muni Funds

One of Smith’s Cadre of Regulars was up to his knees in muni funds at the time he wrote me the note — but, it’s late in the day, so he is probably hip deep.

The muni closed-end funds are down 19.8% since their recent high on October 3, 2010. I think this is astonishing and way overdone but that doesn’t mean that they won’t go lower particularly on any day that Meredith Whitney is on TV or being heavily quoted in newspapers. In any case, here are the best values right now to my mind but whether these prices will hold is questionable. Please keep in mind that every fund is over-earning its dividend as reported in the UBS report that I circularized this morning. I have no idea what the catalyst is going to be to stabilize these funds let alone allow them to rise in price. Back in December, when tax-loss selling was at its worst, several of these funds yielded more than 9% so things could easily get worse. 

BFK, $11.47, 8.38% yield, 3.53% discount, A+ average quality

EIM, $10.57, 8.67% yield, 1.03% discount, AA+ quality – this is by far the worst performing fund

AFB, $12.23, 7.60% yield, 5.90% discount, AA+ quality

BLE, $12.30, 8.15% yield, 4.1% discount, A+ quality

KTF, $10.69, 7.86% yield, 4.6% discount, A+ quality

LEO, $7.20, 8.17% yield, 4.13% discount, A+ quality

MVT, $12.80, 8.3% yield, 1.3% discount, A+ quality

NMA, $12.42, 7.97% yield, 4.3% discount, AA- quality

NMO, $12.20, 8.02% yield, 0.49% discount, AA quality

PML, $9.52, 8.19% yield, 0.74% premium, A+ quality

VGM, $12.52, 8.43% yield, 1.8% discount, A+ quality

VKI, $10.45, 8.38% yield, 3.7% discount, A+ quality

VKL, $10.37, 8.45% yield, 3.5% discount, A+ quality

VMO, $12.15, 8.49% yield, 0.55% discount, A+ quality

Unfortunately, I am knee deep in these (not surprising my muni background) and the average yield of what I own is 8.34%. Only one of the funds I mentioned above are heavy into tobacco bonds which I eschew.  That fund is PML which has 18% of its holdings in tobacco bonds.


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