MFM - CEF Yields Are Less Than Meets The Eye

• We take a look at the different CEF yield metrics, focusing in particular on net asset portfolio yields after fees - what investor capital actually "earns" in the fund.
• We use BlackRock portfolio yield-to-worst numbers, adjusted for fund expenses, to show that taxable CEFs boast portfolio yields on the order of 3%-5% with tax-exempt funds at 1%-2%.
• These numbers are well below the funds' distribution rates and, in our view, broadly representative of fixed-income CEFs in the current environment.
• And given the end of the secular downtrend in interest rates, these numbers are likely to be more representative of longer-term fixed-income CEFs returns.
• This suggests that rather than focus on distribution rates, investors may want to focus more on other metrics such as CEF valuation, historic alpha and the attractiveness of the underlying sector.

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