In this article we review the Nuveen Municipal Credit Income (NZF) closed end fund. The fundamentals are just fine overall and the fund can deliver a high-yield that is exempt from federal taxation. However, perhaps because of persistent distribution cuts, the fund trades at an attractive discount to NAV. Notwithstanding the pesky distribution cuts, NZF can be a great value addition to your portfolio. Furthermore, we demonstrate why you should consider building your wealth with municipal bonds.
NZF is invested in a diversified portfolio of intermediate duration national munis that are primarily investment-grade. With muni defaults being historically rare, the primary concern here is heightened volatility due to interest sensitivity and leverage. In the wake of the Covid crisis, NZF investors have actually benefited by the Fed cutting short-term rates.
High Income, but…
(Source: Original Image – data from Yahoo Finance)
Assuming a federal tax rate of 24%, NZF boasts a tax-equivalent yield of 6.57%. With an admittedly aggressive leverage ratio of about 39%, they have been able to spin off an impressive yield