Top Closed-End Funds: Munis Regain Stability

With seven municipal bond funds dominating the list of the 10 top-rated closed-end funds for the first quarter, it's clear that munis are returning to stability.

The muni sector seems to have come to terms with major concerns that had resulted in disruptions in that segment of the fixed-income markets in recent months.

These included collateral damage from the credit crunch that threatened the triple-A credit ratings of bond insurers. In addition, legal questions were raised last year about exemptions of the funds from state income taxes.

All seven of the closed-end muni funds in the table have produced positive returns for the year to date, with the BlackRock MuniAssets Fund ( MUA) rewarding holders with a double-digit first quarter advance of 10.37%. In addition, each of the high-rated muni funds sports an indicated dividend yield of at least 5.5%, with the Morgan Stanley Muni Income Opportunities Trust II ( OIB) yielding 6.2%.

Six of the muni funds finished the quarter priced at premiums to their respective net asset values per share. The exception was Western Asset Municipal High Income Fund ( MHF), which ended the first quarter of the year priced at a discount of 2.2% from NAV.

A commentary on the uncertainty of our times, investmentwise, is that the three non-muni closed-end funds on the list invest solely, or at least heavily, in natural resources.

The Central Fund of Canada ( CEF) is a gold play, while the word "real" in the name of the BlackRock Real Asset Equity Trust ( BCF) can be interpreted as "tangible."

BCF's stated objective is to invest in sectors such as energy, natural resources and basic materials. Its largest holdings are Rio Tinto ( RTB) and Companhia Vale Rio Doce ( RIO).

Besides its gains from the commodity boom, BCF, with more than half its holdings in international investments, has benefitted from the appreciation of most worldwide currencies vis-à-vis the U.S. dollar.

The Aberdeen Australia Equity Fund ( IAF) slipped 11.75% in the first quarter, but has appreciated 13.58% in the latest 12 months. Its largest holdings are resource investments BHP Billiton Ltd. and Rio Tinto Ltd.

TheStreet.com RATINGS TOP-RATED CLOSED-END FUNDS
NAME, TICKER & TheStreet.com RATINGS GRADE INVESTMENT OBJECTIVE 3-MO. TOTAL RET'N (%) 12-MO. TOTAL RET'N (%) DIVIDEND YIELD (%) PREMIUM/ DISCOUNT (%)
Aberdeen Australia Equity Fund (IAF) A Non-US Equity -11.75 13.58 10.8 2.9
BlackRock CA Muni Bond Trust (BZA) A Municipal Single State 4.61 -5.25 5.7 9.8
BlackRock CA Municipal Income Trust (BFZ) A+ Municipal Single State 4.28 -7.05 5.9 9.0
BlackRock MuniAssets Fund (MUA) A Municipal - National 10.37 -5.17 5.9 7.9
BlackRock NY Muni Bond Trust (BQH) A+ Municipal Single State 1.36 -3.99 5.8 8.3
BlackRock Real Asset Equity Trust (BCF) A+ Equity Income -3.26 17.43 6.7 -15.1
Central Fund of Canada (CEF) A+ Sector - Precious Metals 16.37 33.96 0.1 4.0
Morgan Stanley Muni Inc Opp II (OIB) A Municipal - National 1.78 -5.53 6.2 1.1
Nuveen Muni Value (NUV) A Municipal - National 7.08 0.06 4.8 2.2
Western Asset Municipal High Inc (MHF) A+ Municipal - High Yield 8.25 0.22 5.5 -2.2
For an explanation of our ratings, click here.
Source: TheStreet.com Ratings -- Data as of 3/31/2008.
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.

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