I am updating guidance on NIO. NIO is now a HOLD as there is a better closed end municipal bond fund on offer. This one is from the same issuer. It pays the same yield. But it has a small tweak in that all of the distribution is immune to Alternative Minimum Tax (AMT.)
This will save a few dollars at tax time. But there is another reason to prefer NEA over NIO. NIO is currently trading for a 7.75% discount to Net Asset Value (NAV). NEA on the other hand trades for a 8.70% discount to NAV. We get the same income, a slight edge in tax efficiency, and it is cheaper.
This is not guidance to sell NIO and reallocate. The original municipal bond fund would kick off capital gains (and related taxes) that would be in excess of the small potential savings from the AMT.
Safety: NEA is well diversified with a total of 437 holdings. No individual bond makes up more than 2.1% of holdings. The top five holdings are:
Louisiana State: Gasoline Tax Revenue B – 2.10%
Catholic Health Initi: Tax Exempt Bonds – 2.10%
Massachusetts Stat: Massachusetts Scho – 2.00%
New Jersey State: Transportation Trust – 2.00%
Tobacco Settlement: Tobacco Settlement – 1.70%
Income: NEA pays out $0.0685 per share on a monthly basis or 5.92% annually against today’s price of 13.87. Assuming a 25% margin tax bracket, that is an equivalent yield of 7.41%: tasty!
Devour your prey raptors!