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5 Top Municipal Bond Mutual Funds to Strengthen Your Portfolio - Mutual Fund Commentary

Zacks Equity Research

Debt securities will always be the natural choice of the risk-averse investor because this category of instruments provides regular income flow at low levels of risk. Income from regular dividends helps to ease the pain caused by plunging stock prices. When considering safety of capital invested, municipal bond mutual funds are second only to those investing in U.S. government securities. In addition, the interest income earned form these securities are exempt from federal taxes and in many cases from state taxes as well.

Below we will share with you 5 promising municipal bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all municipal bond mutual funds, investors can click here to see the complete list of funds.

Western Asset Municipal High Income A (STXAX) seeks tax exempted current income. The fund invests a major portion of its assets in “municipal securities” rated in the Baa/BBB categories or below investment grade. If not rated then the subadvisor determines the fund’s credit quality. The municipal bond mutual fund returned 10% over the last one year period.

The fund has an expense ratio of 0.81% as compared to category average of 0.99%.

PIMCO NY Municipal A (PNYAX) invests a lion’s share of its assets in in debt securities whose interest is exempted from regular federal income tax and New York income tax. The fund may invest in “private activity” bonds having interest which is a tax-preference item for purposes of the federal alternative minimum tax. The non-diversified municipal bond mutual fund may also invest in derivative instruments and has returned 7.6% over the last one year period.

Joe Deane is the fund manager and has managed this fund since 2011.

Franklin CA High Yield Municipal A (FCAMX) seeks tax exempted high income. The fund invests a large share of its assets in municipal securities that pay interest which is exempted from taxes collected by the government and the State of California. It may also invest all of its assets in instruments that provide return subject to minimum tax. It may invest a maximum of 35% of its assets in municipal bonds approved by the US territories including Puerto Rico. The municipal bond mutual fund returned almost 12.2% over the last one year period.

The fund has an expense ratio of 0.63% as compared to category average of 0.91%.

BlackRock High Yield Municipal Investor A (MDYHX) invests a large portion of its assets in municipal bonds that provide tax exempted return. The fund may invest a minimum of 65% of its assets in medium to low rated bonds. It may also invest a maximum of 10% of its assets in bonds that are considered to be distressed derivatives. The municipal bond mutual fund returned almost 12.8% over the last one year period.

As of January 2015, this fund held 359 issues with 1.61% of its assets invested in Chautauqua N Y Tob Asset Secur Asset 5%

Oppenheimer Rochester High Yield Municipal A (ORNAX) seeks to provide tax-free income. A lion’s share of its assets is invested in those securities whose income is exempt from federal income tax. The fund primarily invests in municipal securities approved by the state governments, and its affiliates, and the District of Columbia. The municipal bond mutual fund returned 10.6% over the last one year period.

The fund has an expense ratio of 0.71% as compared to category average of 0.99%.

To view the Zacks Rank and past performance of all municipal bond mutual funds, investors can click here to see the complete list of funds.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at www.zacks.com/funds/mutual-funds.


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