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Just like the list of

best-rated ETFs

, the group of closed-end funds ranking at the top of our ratings for August also told a cautionary tale of nervous investors. Nine of the 10 highest-rated closed-end funds are portfolios of municipal securities.

World stock markets are bouncing up and down like highly caffeinated kids on a trampoline. Each time financial firm failures, including




Fannie Mae

( FNM),

Freddie Mac

( FRE), shook confidence, the market dove, and the Feds rushed in to the rescue.

The market bounced back even further on the announcement that Treasury Secretary Henry Paulson would present the mother of all bailouts. True to the trading philosophy of "buy on the rumor and sell on the news," the three-page, $700 billion bailout plan was greeted in Congress as "dead on arrival" in its current construct. Back down we go.

Yesterday, some of the major players announced an agreement on the basic principles of which additional measures would be required to satisfy all parties. President Bush arranges a photo-op in the White House to show that everyone is on the same page. Bullishness returns.

Then, House Republicans reminded everyone that they have their own rescue plan, preferring a variation on the insurance concept presented in my

alternate proposal

and some untenable elements including more deregulation. This kicked the legs out from beneath the Bush administration, Senate Republicans, as well as House and Senate Democrats trying to get a deal. Bearishness returns.

This morning, Rep. Brad Miller, Democrat of North Carolina's 13th district, described the calls coming into his office as being split between half saying "no" and the other half saying "Hell no!" to a

$700 billion bailout

using taxpayer money. The unspoken message is that either we all stand together to pass a very unpopular bailout or it will not pass.

Without a bailout in place to buy

Washington Mutual

's assets for more than they were worth, this morning we were greeted with the largest bank failure in history. This is bad. But, the good news is that the world did not end. Insured depositors did not lose a cent and the Washington Mutual branches opened under a new banner of

JPMorgan Chase


, which bought Washington Mutual's branches and deposits. This is a good fit for JPMorgan as it provides a larger


presence nationwide in its competition against




Bank of America


for depositors.

The best news is that JPMorgan taking over Washington Mutual did not cost taxpayers billions or even millions of dollars.

In all this uncertainty, consider buying municipal securities as a part of your diversified portfolio at a discount to their net asset value. The best-rated closed-end fund,

Western Asset Managed Municipals Fund Inc.


is trading at a discount of 11.6% to the value of its holdings as it was not immune from the market sell-off in recent days.

This is also true for the second-place

Western Asset Municipal High Income Fund Inc.


, now at 7.2% below its net asset value.

The only fund on the list not classified as a muni-fund is the

MFS Government Markets Income Trust


. This fund is allocated to 66% mortgages, 23.6% government, 5.4% corporate debt and 1.9% municipals. After the August-ending period measured by the ratings, this fund has been beaten down to a discount of 11.5% as there has never been a worse time to be holding mortgage-backed securities. Ironically, the fund also holds the debt of a U.S. government agency called the Financing Corporation, created in 1987 to bail out the Federal Savings and Loan Insurance Corporation at rates as high as 10.7%.

For an explanation of our ratings,

click here


Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.