This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Volatility Pummels Closed-End Funds

Unusually high volatility levels in recent months helped push down TheStreet.com Ratings grades of the closed-end municipal bond fund group, normally a relatively calm sector.

This volatility was a prime factor in closed-end tax-exempt bond funds dominating the "Most Deteriorated" grouping of the accompanying table of the biggest recent closed-end fund ratings grade changes.

Three of the muni funds in the table's bottom grouping experienced grade changes that demoted them from hold status to sell recommendations. One skidded from buy-recommended territory to a hold recommendation while the fifth, the Neuberger Berman California Intermediate Muni Fund (NBW), slipped from a buy recommendation that was appropriate for its former grade of A- to a weaker buy in line with its April 30 grade of B-.

Uncharacteristically high volatility of returns has plagued the muni funds for months. Concern about the credit ratings of bond insurers, resulting from the credit crunch, were compounded with doubts about exemption of municipal bond dividends from state income taxes.

But a recent U.S. Supreme Court decision to maintain state income tax exemptions is likely to calm the market and reduce the unusual volatility of the funds.

The suffering of leveraged closed-end bond funds has been amplified by turmoil in the auction-rate securities market.

Despite their downgrades, all five of the closed-end muni bond funds in the "Most Deteriorated" list are ahead for the year to date, with the Eaton Vance Insured Pennsylvania Muni Bond Fund (EIP) up an impressive 7.56%.

The "Most Improved" section of the adjoining table is headed by the Nicholas-Applegate International & Premium Strategy Fund (NAI), which vaulted from a grade by TheStreet.com Ratings of E+, in sell-recommended territory, to a buy-recommended mark of B-. The fund's largest holdings are Telefonica (ADS) (TEF), Nokia (NOK) and Royal Dutch Shell (ADS Class A) (RDSA).

The Nicholas-Applegate International fund is kept company on the "Most Improved" roster by another closed-end entry with international focus, the Clough Global Equity Fund (GLQ). It advanced from a sell recommendation to a status of hold and a grade of C+ by TheStreet.com Ratings. With 63.4% of its holdings invested in U.S. securities, the largest stockholdings of the fund are Intel (INTC) and Transocean (RIG).

The best performer on the list, ahead 47.39% year to date in market return, is the Cornerstone Total Return Fund (CRF), which moved up from a sell-recommended grade of E+ to a mark of C, which equates with a hold recommendation.

Although the CRF's largest holdings are blue-chip stalwarts Exxon Mobil (XOM), General Electric (GE) and Microsoft (MSFT), there are reasons why it hasn't been elevated to buy-recommended status. Unlike the fund's impressive year-to-date market performance, its net-asset-value-per-shares return for 2008 to date has been a negative 7.79%. The divergence between its market performance and its NAV return has left it priced at a sky-high premium of 76.8% over its net asset value per share.

A possible reason for the steady advance of CRF's price is that investors might be attracted to the fund's 14.3% yield. But in 2007, 97% of the fund's payouts to shareholders came from its capital. Some observers feel the same is likely happening this year.

BIGGEST CLOSED-END FUND RATINGS GRADE CHANGES
NAME, GRADE & TheStreet.com RATINGS CURRENT GRADE PREV. GRADE RECOMMENDATION CHANGE INVESTMENT OBJECTIVE YR.-TO- DATE TOTAL RET'N (%) 12-MO. TOTAL RET'N (%)
MOST IMPROVED
Nicholas-Applegate Intl & Prem Str (NAI) B- E+ Sell to Buy Non-US Equity 2.03 -7.98
Cornerstone Total Return Fund (CRF) C E+ Sell to Hold Equity Income 47.39 -15.50
Dow 30 Premium & Dividend Income (DPD) B D+ Sell to Buy Equity Income 8.78 -1.70
Clough Global Equity Fund (GLQ) C+ D- Sell to Hold Global Equity -3.63 8.42
New America High Income Fund (HYB) B+ C Hold to Buy Corp - High Yield -0.04 -4.37
MOST DETERIORATED
Van Kampen MA Value Muni Inc (VMV) D- C+ Hold to Sell Municipal Single State 3.86 -4.12
Van Kampen Sel Sector Muni (VKL) C+ B+ Buy to Hold Municipal - National 4.88 -6.59
Neuberger Berman CA Inter Muni Fund (NBW) B- A- Buy to Weak Buy Municipal Single State 3.92 -5.40
Eaton Vance Insured PA Muni Bond (EIP) D C Hold to Sell Municipal Single State 7.56 -0.23
Nuveen Insured MA T/F Adv Muni Fd (NGX) D C Hold to Sell Municipal Single State 2.98 2.99
Source: TheStreet.com Ratings - Data as of 4/30/2008.
For an explanation of our ratings, click here.

Richard Widows is a senior financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7870 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs