Exploring the Potential of Municipal Closed-End Funds for Secure Income and Tax Benefits

More investors are seeking secure income and tax benefits by turning to municipal closed-end funds. These funds offer high-yield investments and a combination of tax benefits, making them an attractive option. Strategic Yield has co-authored a report on this trend, highlighting the potential of these funds in generating steady income and tax benefits.

More investors are seeking secure income and tax benefits by turning to municipal closed-end funds (CEFs). These funds offer high-yield investments and a combination of tax benefits, making them an attractive option. Strategic Yield has co-authored a report on this trend, highlighting the potential of these funds in generating steady income and tax benefits.

One such fund, the BlackRock MuniYield Quality Fund (NYSE: MQY), has gained attention for its strategic approach to municipal bonds. Launched in 1992, MQY has over 30 years of history and manages approximately $1.4 billion in assets. The fund holds 456 positions, with a focus on transportation projects, corporate, and utility services in states like New York, Florida, and Texas. This diversification reduces risk, with no single position exceeding 2% of the fund's assets.

MQY's credit quality is high, with an effective duration of 17 years and a weighted-average maturity of 20 years. This long-term income potential is suitable for investors expecting stable or falling interest rates. However, the long maturity also increases the risk of inflation. Over the past decade, MQY has provided a total return on price of 2.03% and a total return on NAV of 2.01%.

The fund's distribution rate is 6.37%, with an annual dividend of $0.696 paid monthly. This high yield is supported by leverage, which enhances returns but increases risk. The expense ratio is 3.10%, with management fees at 0.71%, other expenses at 0.11%, and interest costs at 2.29%. The non-leverage expense ratio of 0.82% is reasonable, considering the fund's high leverage.

MQY's 6-month z-score is negative 0.13, the 1-year z-score is negative 0.59, and the 3-year z-score is positive 0.42. These scores indicate that the fund is undervalued, with a 7.45% discount as of August 27, 2025. This discount offers an opportunity to buy assets below their true value, potentially leading to profits on the squeeze.

In conclusion, the BlackRock MuniYield Quality Fund offers a distribution rate of over 6%, an average yield to worst of around 4.5%, and access to tax benefits through high-quality municipal bonds. Despite its duration and high leverage, MQY is a solid choice for income portfolios with a focus on quality, offering stable distributions, diversification, and tax benefits.

References:
[1] https://seekingalpha.com/article/4817700-how-far-have-we-come-in-the-search-for-a-secure-income-a-look-at-mqy