I looked at two of those, NMO & NPT, and both have two aspects that I don't like and that would keep me from having major commitments to either of them or to muni CEF's in general, unless I understood the situations better.
The first is the management fee which is over 1% on the NAV.
I have a CEF. I keep looking at the yield and it's good. I keep forgetting to take into account the management fee in which they quietly and conveniently remove over 1% of the nav. So for example,with something like your muni NPT - since with it, like most other CEF's, its nav is higher the market value per share - in effect, imo, the skimming off of market value is more than 1.24%.
Secondly they (my fund and NMO and NPT) use leverage. 36% for NPT. Which - if one goes into muni CEF's assuming lots of safety - professional management, diversity of holdings, history of very few muni's defaulting - adds a layer of concern rather than assurance - imo.
With leverage, there now becomes another layer of complexity that maybe - in this kind of credit freeze-up environment - needs to be considered. For example, how is that leverage funded? Can it even be discerned easily from the fund? For me, I'm not happy to have received a note from my preferred-stock CEF saying that my fund is leveraged by-the-way by using auction-rate preferred securities, but not to worry, they're working the situation "although significant challenges remain".
Perhaps these muni-CEFs are all well and good, and I am needlessly issuing a cautionary or alarming note. One buys what one will. For me, given my unsatisfactory foray into preferred CEFs, I'd never put a significant chunk of my money into a CEF subsector (muni-CEFs) unless I understood it carefully. To me, it often seems that CEF fund management's objectives and the investor's are different. |
