I can give you a name of a fund trading with the equivalent of a 23% sales charge. It’s actively managed by a company that’s incurred large outflows from its signature mutual fund following the departure of its star chief investment officer. Interested in owning it?
You probably aren’t, but some investors were. PIMCO’s Municipal Income Fund (PMF), a closed-end fund, traded at a 23.4% premium to the underlying value of its net assets last Friday. Put another way, some investors were paying $1.23 for $1.00 worth of net assets. One doesn’t have to know much about investing to realize this isn’t smart.
PIMCO Municipal Income Fund wasn’t the only offender. Eight other closed-end muni bonds funds ended last week with premiums of 10% or more. In comparison, the average closed-end bond fund traded at a 2.32% discount (meaning investors paid just under $0.98 for every dollar of assets), according to the Closed-End Fund Association (CEFA). The average stock closed-end fund traded at a 7.49% discount.
More on AAII.com
- Seeking Tax-Free Income from Closed-End Funds – This 2011 AAII Journal article provides timeless suggestions on what to look for in a closed-end bond fund. Just keep in mind that it was written at a time when closed-end muni bond funds were trading at big discounts.
- Liquidity: The Hidden Risk in the Municipal Market – One big challenge with muni bonds is their low levels of trading volume.
Not an AAII member? Join today
Highlights from the AAII Journal
- Avoiding the Mistakes Made by Ineffective Investors – In the July AAII Journal, The Wall Street Journal’s Spencer Jakab lists seven bad habits that underperforming investors have.
- A Manager’s Insight on Risk and Investing – Karen Firestone discusses her four tenets of sensible risk-taking and shares insights from her experience working with Peter Lynch.
AAII Sentiment Survey
Optimism jumped, staying above 30% on consecutive weeks for just the second time since last November. More about this week’s results.
What’s Trending on AAII
- IRA Rollover Chart: Rules Regarding Rollovers and Conversions
- Life After a Loss: 6 Smart Steps for Coping With Widowhood
- Why Buy Bonds If Interest Rates Will Rise?
The Week Ahead
The earnings calendar will be dominated by mega-cap companies. In total, more than 90 members of the S&P 500 are scheduled to report. Included in this group are 10 Dow components: International Business Machine (IBM) on Monday; Goldman Sachs Group (GS), Johnson & Johnson (JNJ), Microsoft Corp. (MSFT) and UnitedHealth Group (UNH) on Tuesday; American Express (AXP) and Intel Corp. (INTC) on Wednesday; Travelers Companies(TRV) and Visa (V) on Thursday; and General Electric (GE) on Friday.
The week’s first financial reports will be the July housing market index, released on Monday. Tuesday will feature June housing starts. The July Philadelphia Federal Reserve’s business outlook survey and June existing home sales will be released on Thursday. Friday will feature the release of the July purchasing managers’ index (PMI) flash.
The Treasury Department will auction $13 billion of 10-year inflation-indexed securities (TIPS) on Thursday.
AAII is a nonprofit association that provides you with member benefits, tools and services all designed to help increase your investment wealth. With membership, you’ll receive the monthly AAII Journal—our most popular benefit. Topics covered include financial planning, retirement issues, taxation, fund and stock selection, stock screening and a host of timely investment ideas and concepts that you’re certain to benefit from. Forbes Magazine says, “The AAII Journal is a thoughtful mix of investment professionals’ views” and that “the $29 a year it costs to belong to AAII is a bargain.” Join Today.