Nuveen Select Tax-Free Income Portfolio: A Steady Beacon in a Low-Yield Landscape

In an era of historically low interest rates, investors seeking reliable income are increasingly turning to tax-exempt municipal bonds. Among the options, the Nuveen Select Tax-Free Income Portfolio (NXP) stands out as a disciplined, conservative play for those prioritizing steady tax-free distributions without compromising on safety. With a current distribution yield of 4.46%—a notable increase from its 4.27% rate in late 2024—NXP combines low expenses, minimal leverage, and a focus on investment-grade credit quality to deliver what many fixed-income investors crave: predictable income with reduced risk.

The Case for Tax-Free Income in a Low-Rate World

The allure of municipal bonds is clear: their tax-exempt status makes them particularly valuable for investors in high-income tax brackets. Yet not all municipal bond funds are created equal. NXP distinguishes itself by avoiding the pitfalls of some peers: excessive leverage, opaque distribution structures, or reliance on “return of capital” (ROC). Instead, it adheres to a conservative strategy that prioritizes principal preservation while maximizing tax-free income.

Key Strengths of NXP's Strategy

1. High-Quality Portfolio Construction:
   NXP invests at least 80% of its assets in investment-grade municipal bonds, emphasizing issuers with strong credit profiles. This focus on safety aligns with its objective of preserving capital even in turbulent markets. The fund's average portfolio coupon of 5.03% (as of December 2024) underscores its ability to secure favorable terms, a testament to Nuveen's active management and scale.

2. No Return of Capital in Distributions:
   A critical advantage for income investors is NXP's consistent record of distributing only income, not principal. This avoids the erosion of capital that plagues some closed-end funds, which may resort to ROC during periods of low yields or market stress. The fund's distribution history, spanning over a decade, reflects this discipline—most recently with a $0.62 annualized payout in June 2025, up from $0.55 in 2022.

3. Minimal Leverage and Stable Expenses:
   NXP's leverage ratio, at just 0.15% (as of December 2024), is among the lowest in its peer group. This conservative approach reduces interest rate and liquidity risks, making it a defensive choice in a rising-rate environment. Meanwhile, its 0.23% expense ratio (unchanged since March 2024) is exceptionally low for a closed-end fund, ensuring more of the fund's returns flow to investors.

Why NXP Shines in Today's Markets

In a landscape where 10-year Treasury yields hover near historic lows and inflation erodes purchasing power, NXP's 4.46% tax-free yield provides a compelling income floor. For investors in the top federal tax bracket (37%), this translates to an equivalent taxable yield of 7.15%—a rate few taxable bonds can match.

Moreover, NXP's conservative leverage and focus on credit quality mitigate the risks posed by broader economic uncertainty. While rising rates could pressure bond prices, the fund's short duration (if maintained) and high-quality holdings should limit downside volatility.

Investment Considerations and Risks

• Tax Efficiency: NXP's tax-exempt status is most beneficial for investors in high tax brackets. Those in lower brackets may find taxable alternatives more competitive.
• Interest Rate Sensitivity: Like all bond funds, NXP's NAV could decline if rates rise sharply. However, its low leverage and emphasis on shorter-duration bonds may cushion this impact.
• Liquidity and Premiums: As a closed-end fund, NXP can trade at premiums or discounts to its NAV. Investors should monitor this metric to avoid overpaying.

Final Take: A Defensive Income Workhorse

In a world starved for yield, NXP offers a pragmatic solution: tax-free income with minimal risk of capital erosion. Its combination of a solid distribution yield, no return of capital, and a fortress-like balance sheet makes it a standout choice for conservative income seekers. While not a high-growth vehicle, it excels as a defensive anchor in portfolios—a role increasingly vital as investors navigate a low-return environment.

For those willing to prioritize stability over speculative gains, NXP is a fund worth serious consideration.

As always, investors should review the fund's latest prospectus and consult tax advisors before making investment decisions.