interesting post copied from Morningstar board.
socialize.morningstar.com
Re: PIMCO Muni CEFs - What's Wrong
jagor 12-15-2008, 11:13 AM | Post #2604713 0
Mariana Bush of Wachovia Securities, one of the savviest experts currrently writing on closed-end funds, gives a pretty good explanation of what happened to the Pimco muni CEF's and what caused them to suspend dividends.
It's in her Closed-end Fund Monthly Report for November 2008. Apparently there are two main reasons: (1) the Pimco funds [along with Eaton Vance, VanKampen, DWS and Eaton Vance] are the most highly-leveraged and thus are at greater risk of deleveraging if the municipal market weakens, and (2) Pimco followed the practice of shorting Treasurys to reduce the interest-rate senstitivty, a strategy that worked against the portfolios as Treasurys rose.
On the other hand, Mariana Bush states that Nuveen "anticipated deleveraging challenges ahead of its time and earlier than others [and] is probably more cautious" than some of its competitors.
I notice that NUV, which I own, which is unleveraged and holds only investment grade munis, is only down -11% YTD, is selling at a discount of just -1% and is yielding 5.5% tax-free. That's about as good as you can get these days.
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