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Friday, January 21st, 2011
the other shoe

I have written in the past about the levered effect of closed-end funds.  If you are correct about the underlying assets of one — long or short — you usually get an added boost from the movement in the premium or discount to NAV migrating in your direction as well.  (An additional jolt can come from the use of leverage within the fund itself.)

So, given the carnage in the municipal bond arena, I went looking for a large closed-end municipal fund that’s been around awhile, to see what has happened to the fund versus its net asset value.  Here is the Nuveen Insured Municipal Opportunity Fund (NIO).

You can see that the traded price of the fund has gotten hit a bit more than the NAV of late.  They were roughly in line a couple of months ago, and now the fund trades at a 5% discount.  But the longer look shows that the discount usually widens out more than that when the sector comes under pressure.

ETFs are now the dominant investment vehicle, but closed-end funds can provide interesting trading and investing opportunities, either on their own or as paired with an ETF to play the change in the premium or discount to NAV.  Many, including this one, are quite liquid and worthy of being monitored for opportunities.  (Chart:  Bloomberg terminal.)

Pix is currently in a “chart only” mode.  For a look at the more traditional format, see an edition from last summer that has closed-end fund performance (the muni line doesn’t look like that any more) and lots of other goodies.  Subscribe to email notifications.