Unlocking Tax-Advantaged Income: A Deep Dive into Municipal Bond Strategies and the Case of RiverNorth Managed Duration Municipal Income Fund II

Municipal bond income strategies have long appealed to investors seeking tax-advantaged returns, particularly in high-tax jurisdictions. Among the latest entrants, the RiverNorth Managed Duration Municipal Income Fund II (RMMZ) stands out for its high dividend yield and structured approach to tax-free income. However, its performance relative to broader market benchmarks and its risk profile warrant closer scrutiny.

Dividend Consistency: A Pillar of RMMZ's Strategy

RMMZ has demonstrated remarkable consistency in its monthly dividend payouts, a critical factor for income-focused investors. From 2023 to 2025, the fund maintained an average monthly dividend of $0.097, with only a minor reduction to $0.095 in 2025, resulting in a forward annualized dividend of $1.14 per share (7.16% yield as of October 2025). This stability contrasts with many municipal bond ETFs, where yields typically range between 2.7% and 4.2%. For instance, the Vanguard Short-Term Tax-Exempt Bond ETF (VTES) and Invesco National AMT-Free Municipal Bond ETF (PZA) offer significantly lower returns, underscoring RMMZ's competitive edge in generating tax-free income, according to Forbes.

Portfolio Composition and Risk Management

RMMZ's strategy combines two core components: a Tactical Municipal Closed-End Fund Strategy and a Municipal Bond Income Strategy managed by MacKay Shields. As of September 2025, the fund's $32.14 million portfolio emphasized investment-grade municipal bonds, with notable positions in Chicago, New York, and San Francisco, according to RiverNorth. While the fund's active duration management-targeting a duration of +/- 3 years relative to the Bloomberg US Municipal Index-aims to mitigate interest rate risk, its performance has lagged behind the broader market. Year-to-date through July 2025, RMMZ's net asset value (NAV) declined by 5.49%, compared to the Bloomberg Municipal Bond Index's -0.55% return (data from stockanalysis.com). This underperformance raises questions about the effectiveness of its tactical adjustments in volatile markets.

Tax Advantages and Yield Competitiveness

A key allure of RMMZ is its tax-exempt structure, with at least 80% of assets invested in municipal bonds whose interest is generally free from U.S. federal income tax, per RiverNorth's disclosures. For investors in top tax brackets, this translates to a taxable-equivalent yield of approximately 12.9%-a compelling proposition in an era of historically low interest rates, as noted in the Forbes article. However, RMMZ's market price has also faced headwinds, with a -6.25% decline relative to NAV, reflecting broader market skepticism toward closed-end funds trading at discounts (see stockanalysis.com).

Benchmarking Against Peers

While RMMZ's 7.66% yield eclipses most municipal bond funds, its total return profile tells a more nuanced story. Funds like the Nuveen Quality Municipal Income Fund (NAD), which offers a 7.8% yield, have similarly navigated the balance between income generation and capital preservation (discussed in the Forbes article). Yet, RMMZ's underperformance against the Bloomberg Municipal Bond Index highlights the trade-offs inherent in active management. Investors must weigh the fund's high yield against its NAV erosion and market price volatility, particularly in a rising rate environment.

Conclusion: Balancing Yield and Risk

RMMZ exemplifies the potential of municipal bond strategies to deliver robust tax-advantaged income, particularly for investors prioritizing dividend consistency. Its 7.16% forward yield positions it as a standout option in a market where most peers offer far less. However, its underperformance relative to benchmarks and the broader municipal bond market underscores the importance of evaluating total return metrics alongside yield. For those with a higher risk tolerance and a focus on income, RMMZ remains a compelling choice-but not without due diligence on its liquidity and market dynamics.