Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
Ever since the Fed announced that it’s expecting to cut interest rates multiple times in 2024 (as well as falling inflation and healthy jobs growth numbers leading up to it), the fixed income market has been rallying. Junk bond prices, which had already been inflated thanks to low credit spreads, received renewed interest pushing prices even higher. If falling interest rates should ease the financial burden of issuers, then investors should, in theory, be willing to push a little further out on the credit risk spectrum. That’s what appears to be happening here. The broad shift in the yield curve has been the rising tide that’s lifted all boats.
That’s been the case for muni bonds as well, which are back near 2023 highs. The bullish case for munis, however, may not be with the prospect of a further decline in yields or improved financial conditions. It could come from the snowballing federal debt. If multi-trillion budget deficits become the norm, as CBO projections suggest they will, the government is soon going to be faced with a tough choice - cut spending or raise taxes. Since the government has shown no ability to do the former, the latter becomes a real possibility. If tax rates get raised in the future, it could make munis very attractive since they’re federally tax exempt. That’s why I want to look at the Nuveen Municipal Credit Income Fund (NZF). Its portfolio, which consists of munis across all credit ratings, could be a great way to position your portfolio for this event.
Fund Background
NZF seeks to provide current income exempt from regular federal income tax by investing in an actively-managed portfolio of tax-exempt municipal securities. Up to 55% of its managed assets may be in securities rated BBB and below at the time of purchase or, if unrated, judged to be of comparable quality by the Fund's portfolio team, making it a fund that consists of both investment-grade and non-investment-grade securities. The fund also uses leverage in order to enhance yield and total return potential.
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