Closed Ended Mutal Funds

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Sep 8, 2009 11:47 am

Does anyone use Nuveen funds for generating income for clients?  They seem like a better idea than just a straight up bond mutual fund and UIT pricing is really starting to stink.  Any thoughts or feedback?

Sep 8, 2009 11:58 am

Check out EFR and CHI.  They're one of our bigger income producers we've used most of this year, and we like them moving forward more than their open ended counterparts. 

Sep 8, 2009 12:09 pm
 Those look very interesting - check out NLY also, I should have phrased my question better though.  I was thinking more in the tax free space with less volatility.
Sep 8, 2009 1:40 pm

I've never had a good experience with them, other than clients lose money at vast amounts. If I can't find a good ladder to build, and they need income, I'd rather them use a VA with a GMIB.

Sep 8, 2009 2:27 pm

volt - Just FYI - there isn't, at least not that I could find, an NLY.  Unless you're taking about Annaly Capital Managment, which isn't a CEF, and not even close to a tax free CEF.  What's the real symbol you're wanting us to look at. 

 
I've had a couple of clients who have transferred in CEFs.  They are a product I have come to love to hate.  One in particular bought some PHK on the recommendation of a guy they met on a cruise.  Sunk $100K into it.  When I met them it was worth about $120K and they were thrilled with the dividend. Today it's worth $86K.  Late last fall it got down to under $25K.  Now, that may be an isolated incident, but just be aware that those type of things happen with CEFs.  Especially when you start using a leveraged one.   The income can be great, but the volatility will be also.
Sep 8, 2009 2:37 pm

some the funds use leverage to generate above market rates, better to stick to straight corporates.

Sep 8, 2009 3:02 pm
Spaceman Spiff:

volt - Just FYI - there isn't, at least not that I could find, an NLY.  Unless you're taking about Annaly Capital Managment, which isn't a CEF, and not even close to a tax free CEF.  What's the real symbol you're wanting us to look at. 

 
I've had a couple of clients who have transferred in CEFs.  They are a product I have come to love to hate.  One in particular bought some PHK on the recommendation of a guy they met on a cruise.  Sunk $100K into it.  When I met them it was worth about $120K and they were thrilled with the dividend. Today it's worth $86K.  Late last fall it got down to under $25K.  Now, that may be an isolated incident, but just be aware that those type of things happen with CEFs.  Especially when you start using a leveraged one.   The income can be great, but the volatility will be also.
 
I was talking about Annaly, not CEF I know but of the same vein of those other two invesments, I think. I get the fact they are leveraged and have alot of volatility.
 
How about a CEF like NIM?  I don't think it's leveraged, it's tax free, and seems to perform better than bond funds.  I've  got a client that wants limited maturity, monthly payments, and tax free.  Trying to see if anything fits is all.
 
 
Sep 8, 2009 3:04 pm

Yes, leverage can kill some CEF's.  It is my opinion that you should not "dabble" in CEF's - you need to learn and understand them, and follow them regularly.  Yes, there are plenty of exceptions, but some of these can blow up in your face - all while paying a nice distribution.  But it's not much fun to have a 9.5% distribution rate when the NAV is down 75%.

Sep 8, 2009 4:17 pm

Any time someone wants income or something relatively secure to park their money in I'll just recommend a mix of something like HYD or MUB, if they are in a managed account.  Sure they're ETF's and not CEF's and they aren't that fancy, but they'll do the trick nonetheless for low costs. 

Sep 8, 2009 5:44 pm

NIM -  Not a leveraged fund.  But you're only getting a 4.2% distribution rate.  Weren't you saying that UIT pricing wasn't looking good right now?  BTW, all of the MUTs in our inventory, except one, are yielding better than that right now.  And there are quite a few MBDs out there better than that.  It's not a bad yield, but I'm not sure what the point would be in going that direction rather than a UIT or a fund.  The expenses are still 60 bps a year. 

 
B24 is right that you really need to learn about ETFs and how they work before you start using them.  Try explaining premium/discount to a client and see how quickly their head explodes.  If you want education, take a look at etfconnect.com.  Lot's of info there and all the data you can handle. 
Sep 8, 2009 5:49 pm

I would have to agree that the UIT pricing is crap lately. Coupons are still "OK", but buying a UIT at 1000, and par being 905 is a real drag.

Sep 8, 2009 6:03 pm

As compared to what?  How much more are you willing to pay to get a better income stream?  Because that's what your clients care about.  Sure, I love to sell bonds at a discount.  People think they're getting a great deal.  But sometimes it's better for them to buy a bond at a premium because they actually get a better yield.  For instance, right now there's a bond priced at 94.95 yielding 5.65%.  There's also a bond priced at 91.5, but it's only yielding 5.5%.  Which one do you think I'd rather call my client on?  Now, I know they're both discount bonds, but you get the point. 


volt - just be sure you know what you're selling before you stick your neck out there. 
Sep 8, 2009 7:31 pm
Ronnie Dobbs:

I would have to agree that the UIT pricing is crap lately. Coupons are still "OK", but buying a UIT at 1000, and par being 905 is a real drag.



That's my point, Spiff .. I realize over 28 years we'll get their money back but you still have to deal with the "statement effect" The moment the first one shows up there is a big delta - even on our Muni UITS. 

For a 3-5 year hold does NIM or NXP work?  I really have no idea - Jone's provides no guidance on this type of asset class.  Plus, I can get state specific. As for ETFs, who is talking about that?  I'm talking about a closed ended muni fund. 

Sep 8, 2009 7:44 pm

Go to CEFA.COM. There is a wealth of information on CEF's

Sep 9, 2009 9:25 am

If you are concerned with statement effect you should look at premium bonds not discount bonds. They will hold their value better and you get a better stream of income to boot for the client. Are you still limited to only the Vankampen UIT's at Jones? There are some other UIT's that are attractive......

Sep 9, 2009 10:53 am

Yeah it's VK UIT's in inventory. I don't mind selling things at a premium or a discount, but when these UIT's are priced at 1000 and par is 905. It's not an easy sell when the client loses $100 bucks automatically per unit. Thats why i'm sort of shyin away from them right now as well. I've sold quite a few of them. I'm just not liking the pricing right now.

Sep 9, 2009 12:15 pm

Track the VK uit's versus 1st Trust Uit's on an equivalent issue. I think the UIT's can make sense on a equity portfolio.....it is hard for me to convince myself that they are the best way to go on fixed income for my clients....pretty costly.

Sep 9, 2009 12:33 pm
noggin:

Track the VK uit's versus 1st Trust Uit's on an equivalent issue. I think the UIT's can make sense on a equity portfolio.....it is hard for me to convince myself that they are the best way to go on fixed income for my clients....pretty costly.

 
Costly, however, if you have a client who doesn't have enough money to build a good ladder, yet wants diversification, and they would benefit from monthly income, they are nice!
Sep 9, 2009 6:53 pm

Exactly Kool-Aid ... I'm finding alot of people that have been living of interest from CDs and are getting killed right now since the low rates have been with us for a year.  UITs can help bridge the gap but their pricing is tough to explain to someone that does not want a loss of principal.  I'd rather get some lower rates and PAR prices on the Muni side.

The BAB UIT pricing is horrible, in my opinion.  Know spiff will disagree.

Jones limitations on only one product in this space does not benefit the client at all.  Oh well.

Sep 10, 2009 4:49 pm

I wouldn't say I disagree with you.  I would say that you don't have any frame of refernce in which to make those claims.  BAB UITs haven't been around for more than a few months.  That's not a real long time to make definitive statement about pricing being horrible. 


The yields are not as good as they were a month ago, that's for certain.