Muni, High Yield Closed-End Funds Remain a Smart Source of Yield

Municipal bond closed-end funds (CEFs) may not repeat last year's impressive gains, but they remain a smart source of tax-exempt income in a low yield environment, said Chris Larsen, Director of Closed-End Funds at Legg Mason. Larsen added that leverage is less of a worry in high yield closed-end funds because the Federal Reserve is moving slowly and a rate increase will not be a surprise when it does come. He said energy CEFs still offer value because oil prices do not directly impact MLPs. Finally, Larsen said high yield CEFs will benefit from the low default rate for junk bonds.