Post by FD1000 on Apr 29, 2022 3:56:17 GMT
This (article) is about Munis CEFs but I have learned a lot from AGC.
* Muni CEFs have been beaten up so far in 2022. This is the worst 3-month period in a non-recessionary environment for 3 decades.
* In prior periods of rising rates it has been a good time to get in as muni bonds tend to be resilient over time.
* While muni CEFs are much cheaper today than they were three months ago, the rapid decline in the NAVs keeps me on the sidelines.
We continue to be cautious on municipal securities and the price action today - along with the rise in long-term rates and curve inversions - is indicative of that stance. Additionally, the valuation of the sector isn't where we would need it to be in order to be able to offset some of the stronger risks and headwinds.
In this report, we will discuss how to think about the muni space for long-term income-oriented investors. Some investors think of muni investments as a short-term trade but that is not what they are built for. We will go into the way to frame these investments in your portfolio.
The market remains a precarious one and I continue to be in a wait-and-see mode. I have made several swaps as you can add significant value through tax-loss harvesting but as for new money, that is sitting on the sidelines.
However, rising rates drove municipal bond performance to their worst return in 40 years. Through March 31st, the sector experienced a -6.4% total return as muni fund flows continue to be negative.
Update: Since I wrote the above, muni discounts have widened out significantly. We are now at the 84th percentile. However, I'm waiting for the 90th to be interested in adding new money to the space. Not only that but I would need to feel comfortable thinking that long-term rates were close to their top.
Back in September of last year, we sold a significant amount of muni CEFs and moved them into open-end funds like NHMAX, OPTAX, GSMTX, MMHIX, among others.
Is it a time to buy? As I discussed earlier, I have been extremely surprised how discounts have responded to this extremely aggressive rate-rising environment. I'm very surprised we are not back to that 99th percentile in discounts today in muni CEFs. Even if we were, I don't know how aggressive I would be buying today either as I think rates are still moving higher and could be for the majority of the rest of this year.
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FD: good analysis but he hardly goes to cash and he kept holding CEFs in March 2020 and saw his portfolio going down sharply.
BTW, his OEFs holding fell since 09/2021 by about 10-11%...mmm...not a good picture. Cash is king in a meltdown.
The lesson, good analysis is only half the task, the more important is the action.
As I said before, 2 things must happen before I will buy: stabilization + uptrend. When I see that I will be in heavily, I don't believed in DCA going in or out.
Below are 2 attachments for the OEFs I mentioned above. The first is for NHMAX, OPTAX, GSMTX, MMHIX since 09/2021. The second is for one month for (HY Muni=NHMAX,OPTAX,MMHIX)...,(VG IG index=VTEAX)...VG HY Muni=VWALX.
I don't see a shred of stabilization + uptrend and that's the only thing I need to know.
* Muni CEFs have been beaten up so far in 2022. This is the worst 3-month period in a non-recessionary environment for 3 decades.
* In prior periods of rising rates it has been a good time to get in as muni bonds tend to be resilient over time.
* While muni CEFs are much cheaper today than they were three months ago, the rapid decline in the NAVs keeps me on the sidelines.
We continue to be cautious on municipal securities and the price action today - along with the rise in long-term rates and curve inversions - is indicative of that stance. Additionally, the valuation of the sector isn't where we would need it to be in order to be able to offset some of the stronger risks and headwinds.
In this report, we will discuss how to think about the muni space for long-term income-oriented investors. Some investors think of muni investments as a short-term trade but that is not what they are built for. We will go into the way to frame these investments in your portfolio.
The market remains a precarious one and I continue to be in a wait-and-see mode. I have made several swaps as you can add significant value through tax-loss harvesting but as for new money, that is sitting on the sidelines.
However, rising rates drove municipal bond performance to their worst return in 40 years. Through March 31st, the sector experienced a -6.4% total return as muni fund flows continue to be negative.
Update: Since I wrote the above, muni discounts have widened out significantly. We are now at the 84th percentile. However, I'm waiting for the 90th to be interested in adding new money to the space. Not only that but I would need to feel comfortable thinking that long-term rates were close to their top.
Back in September of last year, we sold a significant amount of muni CEFs and moved them into open-end funds like NHMAX, OPTAX, GSMTX, MMHIX, among others.
Is it a time to buy? As I discussed earlier, I have been extremely surprised how discounts have responded to this extremely aggressive rate-rising environment. I'm very surprised we are not back to that 99th percentile in discounts today in muni CEFs. Even if we were, I don't know how aggressive I would be buying today either as I think rates are still moving higher and could be for the majority of the rest of this year.
================
FD: good analysis but he hardly goes to cash and he kept holding CEFs in March 2020 and saw his portfolio going down sharply.
BTW, his OEFs holding fell since 09/2021 by about 10-11%...mmm...not a good picture. Cash is king in a meltdown.
The lesson, good analysis is only half the task, the more important is the action.
As I said before, 2 things must happen before I will buy: stabilization + uptrend. When I see that I will be in heavily, I don't believed in DCA going in or out.
Below are 2 attachments for the OEFs I mentioned above. The first is for NHMAX, OPTAX, GSMTX, MMHIX since 09/2021. The second is for one month for (HY Muni=NHMAX,OPTAX,MMHIX)...,(VG IG index=VTEAX)...VG HY Muni=VWALX.
I don't see a shred of stabilization + uptrend and that's the only thing I need to know.
Attachments:
