NMCO: Killed It. What’s Next?

The Nuveen Municipal Credit Opportunities Fund (NMCO) absolutely destroyed the rest of the Muni CEF sector over the last six-months. As it happens it is a fund that we have been overweight in our Income Portfolio with the view that 1) high-yield munis were still oversold and 2) the spread differential between investment-grade and high-yield munis was going to collapse.

And that’s pretty much how it worked out. Added to the nice ride was that the fund’s price performed even better as the discount tightened nicely.

Where investors go from here really depends on their investment approach. Longer-term buy-and-hold investors may very well stick it out since we seem to be at the start of another macro cycle. More tactical investors who expect a few bumps down the road may want to rotate into a Nuveen mutual fund like NHMAX which would have less volatile price performance as it “trades” at the NAV.

Whatever approach investor take I don’t recommend a binary all-or-nothing move but a more marginal rebalancing in one direction or another. This allocation style acknowledges that we have little visibility on what the market is going to deliver and helps investors adjust positions in a controlled fashion rather than chasing every blip in the market.

Thanks for reading.

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