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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Tax-Free Investing Using Closed-End Funds |
Seeking Alpha - August 29, 2011 - by Michael J Ray
Today’s difficult economic climate has been rough on income investors. Investors who at one time could get competitive rates from US Treasury bills and CDs are now forced out into the larger markets in search of the elusive yield. One place where many investors find themselves is in the world of closed-end funds (CEFs). Presently, the CEF universe is pretty big and there are several different kinds of CEFs, but one of the most popular types are the tax-free municipal funds. It is really no surprise as tax-free income flows appeal to all types of investors. Also with the notion that interest rates will be held low for years to come and the ever-present threat of tax increases, it is not hard to see the appeal of these investment vehicles. In the end, though, there are definite advantages and risks that one must be aware of before one decides to invest in any of these funds as opposed to holding the actual municipal bonds themselves.
Advantages
Since CEFs trade like any stock, there is really no minimal dollar threshold one has to commit to except for the price per share of the CEF. If one were to invest in the actual municipal bond, the minimum purchase price will be $5,000 while others can be up to $100,000. When purchasing the CEF, you could purchase as many shares as you would want.
Most of the municipal CEFs pay out dividends on a monthly basis, which makes for a nice income stream. If one held the actual municipal bonds, then the distributions would only come semiannually.
By buying the CEF, one gets to enjoy asset diversification as the fund will hold a wide variety of bonds within the portfolio. To try to replicate this diversification would be cost prohibitive if one were to invest directly in the actual bonds themselves.
CEFs tend to be much more liquid when it comes time to sell the shares, rather than holding the actual municipal bonds. Since the CEF shares trade on major exchanges and trade like stocks, one can easily exit a position much quicker than if one held a bond. It should be noted that even though CEFs are more liquid than actual bonds, there exist instances where some CEFs might experience liquidity problems as the final factor is basically driven by market demand for the specific equity in question.
Finally we come to the term leverage. Leverage is actually a double-edged sword, but in this section we will focus on the positives. The firm that runs the CEF oftentimes has the ability to issue preferred shares or borrow funds against the portfolio to buy more assets to get higher yields for investors. If successful, the CEF is able to return outsized tax-free yields to investors that are truly outstanding. If one held the individual bonds, one would not be able to duplicate this leverage on any meaningful level.
Fro the complete article.
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| Stuff to look at |
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S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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