Marty Fridson is a leading expert in income investing, covering a wide variety of dividend investing strategies; here, the editor of Fridson/Forbes Income Securities Investor looks at two funds — a limited duration closed-end fund and a tactical municipal bond fund.
Eaton Vance Limited Duration Income Fund (EVV) has an investment objective to provide a relatively high level of current income, with capital appreciation as a secondary objective.
Given normal market conditions, the fund expects to maintain an average duration of between two and four years. Leverage-adjusted duration was 4.3 years at 06/30/21.The fund offers the benefit of reduced interest rate risk, based on shorter duration parameters than many competing funds.
EVV holds a combination of U.S. government securities, floating rate loans, and high yield bonds. The weighted average portfolio quality under normal market conditions is investment grade, but is permitted to have a greater orientation towards non-investment grade.
As of 06/30/22, the portfolio’s asset mix was largely fixed income, consisting of Senior Loans (35.8%), Non-Investment Grade Bonds (25.7%), and U.S. Government and Agency Mortgage-Backed Securities (23.5%). Corporate risk stood at 59.4% and Securitized Credit accounted for 34.2%.
EVV has a monthly managed distribution policy by which dividend distributions may include qualified and ordinary dividends, capital gains, and return of capital. With this Review, we continue to recommend EVV for medium-risk portfolios. Buy at $13.00 or lower for an annualized yield of 9.23%
RiverNorth Managed Duration Municipal Income Fund (RMM) seeks to provide current income exempt from federal income taxes and secondarily total return. RMM has a final stated maturity with termination on or before 07/25/2031.
The fund allocates managed assets between two strategies — Tactical Municipal Closed-End Fund Strategy (TMCEF) and Municipal Bond Income Strategy (MBI). TMCEF aims to generate returns through investments in municipal ETFs and closed-end funds, while MBI seeks to generate above-average tax-free income and total return through owning investment grade municipal bonds.
Under normal market conditions, the fund invests at least 80% of managed assets in municipal issues, with a weighted average duration inside of three years. As of 06/30/22, TMCEF and MBI allocations were 31% and 69%, respectively.
The top five holdings in the consolidated portfolio were Nuveen Quality Municipal Income Fund (6.0%), Nuveen AMT-Free Quality Municipal Income Fund (6.0%), Sweetwater California Union High School District (4.0%), Cash & Cash Equivalents (4.0%), and State of Illinois (3.0%).
Total return performance was challenged in 2022 by heightened recessionary risks and sharply higher interest rates. The fund’s market price total return of -23.71% for the YTD period ended 09/30/22 was in line with the performance of many corporate and municipal leveraged bond funds. It’s our opinion that the credit markets have experienced selling pressure that likely overstates the ultimate impact of continued high interest rates.
We look for greater traction and steady relative improvement in RMM’s returns over the months ahead. This investment is suitable for medium-risk taxable portfolios. Distributions are largely tax-exempt on a Federal basis. Buy at $19.00 or lower for a 5.87% annualized yield.
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