32 BARRON’S September 16, 2019
companies. Among its development
plays: Zilkha Biomass Selma, an Ala-
bama-based pellet manufacturer; Hyatt
Regency Chesapeake Bay, a resort and
conference center owned by the state of
Maryland; andDelta Air Lines’ (DAL)
bonds to finance its terminal’s construc-
tion at LaGuardia Airport in New York.
But the strength of Nuveen’s flexi-
ble strategy is that it can also play
defense. Historically, the fund’s alloca-
tion to junk-rated muni bonds has
ranged from 26% to 47%. As of the end
of July, it was on the low end of the
spectrum at 30%. “The high-yield mar-
ket is so supply constrained,” Ryan
says. “Allotments can be light, and you
take what you can get.”
Miller and Ryan are also finding
more opportunities in investment-
grade bonds from California and New
York, which account for 30% of the
portfolio. Since the passage of the 2017
Tax Cuts and Jobs Act, residents of
high-tax states are subject to a new,
$10,000 cap on state- and local-tax, or
SALT, deductions. That has made
wealthy New Yorkers and Californians
hungrier for tax-free income. Simulta-
neously, the new law raised the income
level at which people are subject to the
Alternative Minimum Tax, or AMT—a
parallel federal income tax for the
wealthy—reducing the number of
people subject to it.
Municipalities typically sell AMT-
exposed bonds at higher yields to at-
tract more investors. Now that fewer
people will have to pay the AMT, such
bonds are more attractive. One exam-
ple is San Francisco International Air-
port bonds, the fund’s largest holding
as of the end of July. The AMT ones
yield 0.32 percentage point more than
non-AMT ones.
One mechanism that Miller and
Ryan employ to control risks is inter-
est-rate hedging. The fund can short, or
bet against, Treasury bonds that will
fall in value when interest rates go up.
(As rates rise, already-issued Treasur-
ies look worse in comparison with new
ones issued at the higher rates, so the
existing ones fall in value.) The fund did
this throughout much of 2018 as rates
were rising, then removed the hedge
near year end when markets became
more volatile and the Federal Reserve’s
interest-rate increases seemed done.
“Our hedge is not on autopilot,”
Miller says. Indeed, having the flexibil-
ity to make those kinds of exposure
adjustments, and getting them right,
are this fund’s key strengths.
Miller bought its bonds for 31 cents on
the dollar of their face value.
“These [power plant] assets are
being dramatically undervalued,” Miller
says. “The power markets need a diver-
sified strategy as opposed to trying to
convert to 100% natural gas.” He
proved correct. Ohio is offering the
company zero-emission credits to bail
out its nuclear plants, while the parent
company is helping stabilize the subsid-
iary by taking on its employees’ pen-
sion obligations, Miller adds. The bonds
have almost tripled in value to 88 cents
on the dollar of their face value.
The fund has benefited recently
from a number of such “pollution
control” or “industrial-development
revenue” bonds of formerly distressed
Nuveen Strategic
Municipal Opportunities
Note: Holdings as of 7/31. Returns through 9/9; three-year returns
are annualized.
Sources: Morningstar; Nuveen
Total Return
YTD 1-Yr 3-Yr
NSAOX 9.7% 11.2% 4.8%
Muni National
Long Category
8.3 8.9 3.1
Top 10 Holdings Coupon Maturity WeightingSan Francisco
International
Airport
5.00%
May
2044
2.3%
Indianapolis
Bond Bank Com-
munity Justice
Campus
5.00
Feb.
2049
1.6
New York City
Series 20a-1
4.00
Aug.
2044
1.4
NYC Municipal
Water Finance
Authority 19dd-2
5.25
Jun.
2049
1.3
California Health
City of Hope
National Medical
Center
4.00
Nov.
2045
1.2
Michigan
Hospital Authority
McLaren Health
Care 19a
4.00
Feb.
2047
1.2
Buckeye Tobacco
Settlement Fi-
nancing Authority
Asset Backed
5.75
Jun.
2034
1.2
Triborough
Bridge & Tunnel
5.00
Nov.
2049
1.1
Los Angeles
County Metro-
politan Transit
Authority
5.00
Jul.
2044
1.1
Denver Airport
Revenue
5.00
Dec.
2035
0.9
Total 13.3
Funds
Will Bitcoin ETFs Happen?
By Lewis Braham
BITCOIN TRUSTS ARE LIKE PINOCCHIO—THEY VERY MUCH WANT TO BE “REAL”
exchange-tradedfunds.EarlierthisSeptember,VanEckSolidXBitcoinTrust
launchedtohalfheartedfanfarebecause,despiteitsoutstanding ETFapplica-
tionwithregulators,thetrustthatinvestsinthepopularcryptocurrencystill
isn’tapublicETFaverageinvestorscanbuyandsell.Asofnow,onlybrokers,
hedgefunds,andinstitutionscanbuy,andprivatelytrade,shareswithonean-
other.
RegardingVanEck’sandotherBitcoinETFapplications,SecuritiesandEx-
change Commission Chair Jay Clayton recently remarked that there is still
“worklefttobedone.”Claytonpointedtoconcernsthathavedoggedsuchap-
plicationsforalongtime—thatBitcoinitselftradesonunregulatedexchanges,
and could be subject to price manipulation.
The battle with the SEC for a Bitcoin ETF began in July 2013, when the
Winklevosstwins,CameronandTyler,appliedtolaunchtheWinklevossBitcoin
Trust.Afteryearsoflegalwrangling,the SECrejectedtheirsecondapplica-
tion in July 2018.
Now,there’sVanEck’sapplication,plustwootherersatzETFsupforSEC
approval:BitwiseBitcoinETFTrustandWilshirePhoenix’sUnitedStatesBit-
coin and Treasury Investment Trust. The SEC has delayed ruling on these
ETFs,butnowhasafinaldecisiondateforBitwiseonOct.13andforVanEck
on Oct. 18, with a tentative deadline for Wilshire on Sept. 29.
Matt Hougan, Bitwise Asset Management’s global head of research, says
much has changed recently that should allay regulators’ concerns: “Bitcoin
marketshistoricallywerenotregulatedanddidn’thavetraditionalmarketsur-
veillancetechnology.ButinJanuaryof2018,theNewYorkDepartmentofFi-
nancial Services put in place a requirement that the Bitcoin exchanges need
tohavesurveillancetechnology,andsixofthe10majoronesnowhavethesame
technologyastheNasdaqandNYSEstockexchanges.So,eventhoughthat’s
not the same as national securities regulation, these are state-regulated ex-
changes with significant market surveillance.”
HouganalsopointsoutthatBitcoin’stradingvolumehasgrownsignificantly,
to $1 billion a day, making it harder for any player to manipulate prices. Yet
someexpertsstillhavedoubtsthatETFapprovalisimminent.“TheSEChas
been very clear about what its concerns are regarding a Bitcoin ETF,” says
BartSmith,co-headofSusquehannaInternationalGroup’sETFGroup.“The
Bitcoin,ETF,andmarket-makingcommunitieshavebeenworkingveryhard
toaddressthoseconcerns,andtodatewehavenotgottenthere.”Susquehanna
is a major ETF and Bitcoin trader.
Even if the ETFs are approved,it’shardtosaywhattheirreceptionwillbe.
Theirtargetinvestorsarefinancialadvisorswhocan’tallocatetheirclients’re-
tirement portfolios to cryptocurrency easily. Yet advisors seem ambivalent
aboutBitcoinasaninvestment.ABarron’semailblastinterviewrequesttothe
advisornetworkattheNationalAssociationofPersonalFinancialAdvisorsre-
ceived mostly hostile responses and a few positive ones.
“WehavenointerestinBitcoininanyform,ETForotherwise,”wroteBob
Kargenian,presidentofTABRCapitalManagementinOrangeCounty,Calif.
“It’sawasteoftime,andpurespeculation.Withabitofknowledge,onewould
have better odds in Las Vegas.”
Until that attitude changes, it may not matter whether these Pinocchio
investments are real ETFs or not.