RiverNorth Flexible Municipal Income II: Discount Narrows, Less Appealing

RiverNorth Flexible Municipal Income II (RFMZ) is a closed-end fund offering exposure to municipal bonds through individual issuances and other closed-end funds. However, the discount to net asset value (NAV) has narrowed, making it less appealing. The fund provides a means to access municipal bonds while also benefiting from the diversification of investing in a closed-end fund.

RiverNorth Flexible Municipal Income II (RFMZ) is a closed-end fund that provides exposure to municipal bonds through individual issuances and other closed-end funds. The fund, managed by RiverNorth and Mackay Shields, aims to offer current income exempt from regular U.S. federal income taxes, with a secondary objective of total return.

However, the discount to net asset value (NAV) of RFMZ has narrowed, making it less appealing to investors. As of the latest data, the fund's discount stands at -7.29% [1]. This narrowing discount reduces the potential for investors to benefit from the fund's discount, which was previously a key attraction.

RFMZ's investment strategy involves allocating assets between a closed-end fund (CEF) sleeve managed by RiverNorth and a sleeve managed by Mackay Shields. The fund's asset allocation is heavily weighted toward investment-grade bonds, with 94% of the portfolio classified as investment-grade as of the end of June 2025 [1]. This conservative approach is reflected in the fund's long-duration portfolio, with an average maturity of 10.7 years, which is hedged to a duration of 7.1 years [1].

The fund's leverage, currently at 41.6%, has increased its total expense ratio to 4.76% [1]. This high level of leverage, combined with the underlying CEFs' expense ratios, can lead to higher costs for investors. Additionally, the fund's distribution yield, which stood at 8.01% as of the latest data, has not been fully covered by the fund's NAV, indicating potential tax implications for investors [1].

In comparison to its sister fund, RiverNorth Managed Duration Municipal Income Fund (RMM), RFMZ has shown slightly better performance on a total share price basis, but the discount differential between the two funds has narrowed [1]. This narrowing discount reduces the potential swap opportunity between the two funds.

Overall, while RFMZ offers exposure to municipal bonds and diversification through closed-end funds, the narrowing discount and high expense ratios make it less appealing to investors. Investors should carefully consider the fund's risks and potential rewards before making investment decisions.

References:
[1] https://seekingalpha.com/article/4814354-rfmz-discount-narrows-making-it-less-appealing