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Scott Van Voorhis Sep 21, 2018 7:00 AM EDT Bracing For Closed-End Fund Distribution Cuts
Investors in closed-end funds should brace themselves for distribution cuts in the months ahead as the Federal Reserve forges ahead additional interest rate hikes, a top industry executive says.
This phrasing in the article is prob'ly revealing: "especially those focused on muni bonds and other fixed-income investments...." Munis as a class, yes, but the author (and perhaps his sources) seem to extend the theme to CEFs in general, which isn't entirely accurate. A few floating rate and other funds have actually upped their distributions in the past few months.
As always, anyone thinking about investing in CEFs needs to carefully examine the stats of specific funds, and not rely on generalizations. In the muni space, for example, Pimco's PML is underearning its distribution, BUT has a big pile of undistributed earnings that are keeping it well afloat, and even running to a substantial premium of price over NAV. (The premium is the reason to be cautious about PML, not the distribution coverage.)
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As always, anyone thinking about investing in CEFs needs to carefully examine the stats of specific funds, and not rely on generalizations. In the muni space, for example, Pimco's PML is underearning its distribution, BUT has a big pile of undistributed earnings that are keeping it well afloat, and even running to a substantial premium of price over NAV. (The premium is the reason to be cautious about PML, not the distribution coverage.)