Newspaper article St Louis Post-Dispatch (MO)

Muni Bond Funds' Sell-Athon Dims the Nuveen Sheen

Newspaper article St Louis Post-Dispatch (MO)

Muni Bond Funds' Sell-Athon Dims the Nuveen Sheen

Article excerpt

It's not what you earn, it's what you keep that counts."

That catchy little slogan has helped John Nuveen & Co. in Chicago sell $26 billion worth of shares in tax-free municipal bond funds - the kind that trade on the New York Stock Exchange.

After a dramatic sell-off in exchange-traded muni funds, however, it appears investors in Nuveen and other muni funds have adopted the slogan: "Take the money and run."

The selling spree has been motivated by a collection of investor fears related to rising interest rates and the way many of these investment products are designed.

While the values of muni bond funds have been under gentle pressure from rising interest rates for several weeks, muni bond funds took their first severe hit two weeks ago, according to Lipper Analytical Services Inc.

During five trading days, the prices of 225 exchange-traded muni bond funds dropped an average of 2.2 percent. But it was an even worse week for Nuveen - its funds slipped 3.2 percent.

Nuveen was hit by the rise in interest rates and tax-season selling, but

the primary spoiler was the upward move in Treasury bond rates. While muni bonds generally enjoy a cushion against bond market gyrations, they cannot resist being pulled along by the Treasury market.

When rates rise, of course, the prices of a fund's bonds fall. Knowing that, some investors in older funds have been selling to lock in their profits.

The tax season creates its own reasons for selling. Investors in newer funds, some of which have small losses, may sell to generate tax losses that can offset gains.

Nuveen created other problems for itself by announcing it would raise new money for two of its original funds through what is called a "rights offering." Nuveen will give shareholders the right to buy one new share for each three shares already owned as of Dec. 20.

The announcement, made on Nov. …

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