Jake, In general, I like muni funds. The trick with the closed end ones is to figure out what they are paying for the formerly auction rate preferred stock. If they are paying more than or equal to the fund yield, you had better find it selling at a deep, deep discount.
The Nuveen funds from California, Florida and New York all meet these requirements. Most sell at 17% to 18% discounts, with 70-80% of holdings rated AAA or AA, without insurance. California, New York and even Florida are very rich states with lots of resources to handle their debt service requirements. I would be a bit more unlikely to bet on Michigan bonds. Either the auto cos. are going away or the workers are going to have a lot less income to spend, as will the suppliers. I still doubt that there will be massive defaults in A rated or better bonds, but there will be a lot more thought along those lines.
Remember, the default rate on munis is less than 1%, which makes me feel pretty confident with an 18% discount. |
