Top Muni Funds

6 Top Muni Funds

Top Muni Funds Published on Mar 7, 2016

Top Muni Funds – Morningstar’s Beth Foos shares some of our top picks for tax-sensitive investors seeking short-term, longer-term, or high-yield muni funds.

Top Muni Funds

Top Muni Funds

Crossroads Capital up 55.8% YTD after 32.5% in 2019 explains how it did it

Jeffrey Aronson Crossroads CapitalCrossroads Capital is up 55.8% net for this year through the end of October. The fund released its 2019 annual letter this month after scrapping its previous 2019 letter in March due to the changes brought about by the pandemic. For 2019, the fund was up 32.5% net. Since inception in June 2016, Crossroads Capital Read More


 

0:03I’m Christian bands for morningstar.com its tax relief we can morningstar.com
0:08joining me to discuss some of Morningstar’s favorite municipal bond
0:11funds is senior analyst better for us but thank you so much for being here
0:15thanks for having me before we get into some of the specific funds that you in
0:20the team like I’d like to talk about the case for holding municipal bonds inside
0:24of a text book out what are the tax advantages of doing that
0:28sure well muni bonds are most attractive for folks that are looking to manage the
0:32tax consequences of their investments primarily because the interest earned on
0:38muni bonds is generally free from federal income taxes depending on where
0:43that investor Liz they can also be free from state income taxes and local income
0:50taxes as well
0:51ok so if I live in California and I’m buying California bonds I may get the
0:57ball I will get the national tax break and then I may also get the state and
1:00local tax break to absolutely ok so let’s get into performance of Muni is
1:06before we get into the to the specific funds that you want to talk about
1:08performance has been really good when I look across year-to-date through mid
1:14February or the one year trailing returns every single Muni categories in
1:19the black so what has been driving that that’s better than is the case for text
1:24the text will bond categories were you have various categories that have
1:27absolutely unions actually fared relatively allowed through the rocky
1:32markets of of 2015 and and that has also pleased you in 2016 as well I think it
1:38was actually one of the top-performing fixed-income asset classes for 2015 and
1:45is doing again as you said very well in 2016 and I think that’s primarily
1:49because we’ve seen some of the larger issues that were weighing down the
1:57taxable bond
1:58equity issuers such as the decline in oil prices of the general concern over
2:06slower economic growth primarily in emerging markets just don’t impact Muni
2:12issuers as directly as significantly immediately as they do some of those
2:18other issuers so we saw a lot of that market volatility in the corporate bond
2:23and equity space cause some flight to quality for investors especially in the
2:29second half of 2015 and unions have always been regarded as a higher quality
2:34lower volatility sector so we saw a lot of inflows into muni funds at the same
2:40time
2:41issuance was was kind of flat or lower than historic levels so so how does
2:48issuance help you knees performance low issuance will when you see a high demand
2:55and you don’t see a lot of new issue and obviously the bonds that are currently
3:01out there are going to have prices higher price point yet okay so it’s
3:06interesting that even though maybe municipal finances haven’t been on the
3:11front burner these other things have been concerning the market
3:14municipal finances troubles haven’t gone away we live in Chicago Illinois we’re
3:19certainly there are plenty of issues so let’s talk about that and and talk about
3:24kind of the state of municipal finances and and how investors are thinking about
3:29that today

Top Muni Funds

Top Muni Funds
3:30sure I think we have seen and will continue to see some very stress
3:36situations grab the headlines over 2015 and that continued to 2016 as you
3:42mentioned the city of Chicago has quite a significant budget struggle on the
3:47state of Illinois we’re seeing the Commonwealth of Puerto Rico declare that
3:53it that it can’t pay all of its obligations so those those things are
3:58they’re stressed in the continued to weigh on some potentially some of the
4:04funds that they currently reside in but overall the credit quality of the Muni
4:10market continues to grow its strong and defaults remain very low so overall I
4:16think there you know we’re continuing a very strong trend ok let’s talk about
4:23what you in the team look at when you are evaluating various firms in the
4:27quality of their municipal bond fund lineups what are some of the key things
4:31that you home in on well because the Muni market is so large in in diverse
4:37and quite fragmented we want to make sure that we look for funds that have
4:42very strong robust research capabilities we look for teams that have experienced
4:48managers a robust too crowded in quant staff and then pretty sophisticated
4:55tools that support them that can help them analyze the certain user creditor
5:00interest rate risk that they know take on in their portfolios and expenses of
5:05course her factor for six months or so you brought some of the the team’s
5:11favorite funds and you kind of segmented them by type so let’s start with the
5:16same as short-term high quality Muni fund that you like for the person who
5:20maybe has money that they expect to spend within the next five years what’s
5:25a good option for someone like that you know it all back up and say that the
5:29funds that generally check all the boxes that were looking for
5:33particularly in the Muni space those firms are fidelity and T rowe Price we
5:41really like them you need teams we like their unique offering specifically the
5:45National Union offerings there because they have invested in their teams
5:50invested in their tools they offer pretty consistent returns a usually a
5:56lower price point
5:57Vanguard also obviously known for its very low fees are it have a pretty as a
6:02pretty straightforward
6:03strategy when it looks at me as well so but specifically for those with a little
6:09interested in a little less interest rate risk
6:12fidelity’s gold traded limited term income fund is something to take a look
6:18at Tea Rose tax-free short intermediate fund or their summit Muni intermediate
6:24find is also a really good choice
6:26ok and how bout for an investor who has a slightly longer time horizon again I
6:33would look towards the gold traded funds 0 price tax-free income infidelities
6:37tax-free bond funds are very good choices because again over the longer
6:41term they’re providing a consistent results with lower volatility and lower
6:46fees ok it’s interesting within the Muni space a lot of the issuance is long
6:52maturity correct and a lot of the funds are set up to focus on the long maturity
6:57bonds so let’s talk about a funder to that you like in that area because that
7:02is where a lot of the assets are where the longer maturity bonds we really like
7:07the T rowe Price tax-free bond again it consistently takes a limited amount of
7:16credit risk it really manages that and its interest rate risk but at the same
7:22time again offers you know lower fees and and not a tremendous amount of
7:27volatility which i think people are really looking for in there longer me
7:30portfolios like to talk a little bit about high-yield Muni is it’s been
7:35interesting to see that even as high-yield taxable bonds have had a
7:39rough go of it recently high-yield Muni have been doing ok why is that
7:43sure well again I think it’s because some of the salient issues that have
7:48affected the
7:49high-yield corporate bond issuers equity issuers just aren’t the same as we see
7:56in the high-yield Muni market and they’re not affecting the issuer is in a
8:00similar manner so the steep drop in oil prices again or the concern over slower
8:08growth in the emerging market sector really don’t directly impact some of the
8:13factors that we are traditionally seen the high-yield space such as tobacco or
8:19some of the lower credit quality hospital factors for instance which is
8:26why they performed relatively well so you gotta find that you like in this
8:30area but let’s talk about in addition to this fine let’s talk about the role that
8:36high-yield Muni could serve in a portfolio should you think about it as
8:39kind of the aggressive kicker when you’ve got your core high quality piece
8:42built out let you know the specific fun though that we do Lake in the Hills
8:48basis T rowe Price’s tax-free high yield fund we give that a gold rating and
8:53again I think because it takes a certain amount of calculated rescue down and it
8:57delivers consistent results especially in down markets but I think how people
9:03should look at that high yield bond you know that role in their portfolio you’re
9:09gonna get a little bit more you know yielded they are so that you’re looking
9:13for
9:14that’s good but in in the same sense we still have to take a bit of caution with
9:21that because again it’s there’s risk associated with those higher yields we
9:25want to make sure that the manager in the investor can know what those
9:29calculated risks are and how to manage it thank you so much for being here to
9:34share your insights as part of our tax relief week thanks for having me thanks
9:38for watching i’m Christine Benz for morningstar.com

Top Muni Funds