Municipal Bond Funds in Taxable Account

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Mikecgrs
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Municipal Bond Funds in Taxable Account

Post by Mikecgrs » Mon Nov 12, 2012 11:13 am

I have VWAHX in my taxable account and am also looking at a Pioneer closed end fund, MHI, which offers a substantially higher yield (albeit with higher volatility). I’ve searched the threads and can’t find much mention of MHI. During the recession, MHI performed roughly like the S&P 500 (VFINX) but it yields 7% tax-free. And, dividends have increased in absolute terms since early 2006. It’s recently been trading at a substantial premium to NAV, but I’m thinking of buying some when the differential lessens. Am I missing something that would make this a less attractive idea?

DaveS
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Re: Municipal Bond Funds in Taxable Account

Post by DaveS » Mon Nov 12, 2012 6:06 pm

Do a search on reaching for yield. I don't know a thing about the Poineer fund but what you say sounds awful.

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indexfundfan
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Re: Municipal Bond Funds in Taxable Account

Post by indexfundfan » Mon Nov 12, 2012 6:30 pm

Most here don't believe in using leveraged CEF. The yield might be high but the drop in NAV would kill off returns. In 2008, these were trading at around 30% discount to NAV for some time.
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Saving$
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Re: Municipal Bond Funds in Taxable Account

Post by Saving$ » Mon Nov 12, 2012 9:43 pm

Mikecgrs wrote:I have VWAHX in my taxable account ... It’s recently been trading at a substantial premium to NAV
I thought mutual fund share price is, by definition, its NAV at close. Why would a mutual fund trade at a premium?

sscritic
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Re: Municipal Bond Funds in Taxable Account

Post by sscritic » Mon Nov 12, 2012 9:50 pm

Saving$ wrote:
Mikecgrs wrote:I have VWAHX in my taxable account ... It’s recently been trading at a substantial premium to NAV
I thought mutual fund share price is, by definition, its NAV at close. Why would a mutual fund trade at a premium?
Who is "it"? Look for the missing letters (they weren't missing until you ...ed them). Hint: there are three of them. They aren't ETF, but that's another hint.

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grabiner
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Re: Municipal Bond Funds in Taxable Account

Post by grabiner » Tue Nov 13, 2012 10:19 pm

Mikecgrs wrote:During the recession, MHI performed roughly like the S&P 500 (VFINX) but it yields 7% tax-free.
If your bond fund loses as much in a bear market as a stock fund (MHI does this because it starts with risky bonds and then borrows money for leverage), then it doesn't provide any diversification benefit; you might as well use a stock fund, which produces mostly tax-deferred gains.

Vanguard High-Yield Tax-Exempt, despite the name, is not a junk-bond fund. It is Vanguard's riskiest muni fund, so you need more of it to get the same diversification benefit that you would get from a lower-risk fund, but it can still be used as a diversifier. I would normally prefer a lower-risk fund, particularly if Vanguard has one for your state.
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mas
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Re: Municipal Bond Funds in Taxable Account

Post by mas » Tue Nov 13, 2012 10:50 pm

sscritic wrote:Who is "it"? Look for the missing letters (they weren't missing until you ...ed them). Hint: there are three of them. They aren't ETF, but that's another hint.
Seems a bit of a harsh way to clarify a misunderstanding.

Saving$:
  • MHI is a CEF (closed end fund) and has a market price in addition to its NAV.
  • VWAHX is an open ended fund and does not have a market price that differs from its NAV.
http://www.sec.gov/answers/mfinvco.htm

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