Mutual funds having significant exposure to municipal bonds, also known as “munis,” are excellent choices for risk-averse investors looking to derive stable tax-free returns. These funds seek to provide returns with a low level of risk by investing in municipal debt securities issued by state and local governments.
These securities are believed to provide steady returns exempted from federal taxes and in many cases from state taxes as well, which is why investors prefer these securities in a choppy market. Though munis are expected to provide lower yields than taxable bonds, they fetch better returns for investors in high tax brackets if we consider after-tax returns.
Below we share with you four top-ranked municipal bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.
American Century High-Yield Municipal Investor ABHYX seeks maximization of income that is free from federal income tax and focuses on appreciation of capital. The fund invests in different debt securities like municipal bonds, with special emphasis on high-yield debt securities. American Century High-Yield Municipal Investor has returned 3.9% in the past three years.
As of September 2018, ABHYX held 361 issues, with 1.64% of its assets invested in BUCKEYE OHIO TOB SETTLEMENT FING AUTH 5.88%.
Goldman Sachs (NYSE:GS) High Yield Muni A GHYAX invests a large chunk of its assets in fixed income securities, interest from which is exempted from regular federal income tax. The fixed income securities are issued on behalf of territories and states of the United States. Goldman Sachs High Yield Muni A has three-year annualized returns of 5.6%.
Scott Diamond is one of the fund managers of GHYAX since 2002.
Lord Abbett High Yield Municipal Bond A HYMAX invests a major portion of its assets in tax-free, interest-paying municipal bonds. The fund invests a significant portion of its assets in lower-rated bonds or junk bonds. Its dollar-weighted average maturity varies from 10 to 25 years, depending on market conditions. It is a non-diversified municipal bond mutual fund. Lord Abbett High Yield Municipal Bond A has returned 4.6% in the past three years.
HYMAX has an expense ratio of 0.80% compared with the category average of 0.94%.
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.
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Zacks Investment Research