Despite risks in the muni-bond market, defaults are isolated, and the diversification in muni CEF portfolios helps protect against credit problems.
As the Fed intends to keep interest rates low for the next few years, muni-CEF investors should maintain a close watch on their funds' call exposure.
Bond-fund investors need to focus on duration, credit quality, and relative yields to better understand how much risk they're taking on, says Morningstar's Eric Jacobson.
Because of their distinctive structure, closed-end funds could offer investors a leg up in the muni market, but be sure to get comfortable with the quirks of CEFs before investing.
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