First, we select the top trending category from more than 200 categories listed on MutualFunds.com based on the percentage increase in monthly viewership. From the top trending category, we select the top three funds with the highest one-year trailing total returns. To ensure the quality and staying power of funds, we only look at mutual funds with a minimum of $250 million in assets and a track record of at least one year. We also remove mutual funds that are closed to new investors and not available for investment outside registered accounts, such as retirement or 529 accounts.
In this week’s edition, we analyze the top three High Yield Muni Bond Funds. These funds invest in riskier municipal bonds where investors can realize higher yields in exchange for a higher risk of default or other adverse credit event.
Municipal bonds have become a safe haven in fixed income markets that have been rocked by higher interest rates in recent months. With tax rates projected to rise under the Biden administration, municipal bonds have become increasingly attractive since interest is exempt from federal and, in most cases, state and local taxes. High yield municipal bonds offer more attractive yields than conventional bonds, although at a greater risk.
Our breakdown of each fund includes key aspects, such as one-year performance, fund expenses, investment style, and management teams, to give you an overview of how these funds hold up against their peers.
Be sure to check out the High Yield Muni Bond Funds page to find out more about other funds in this category as well.
1. BlackRock High Yield Municipal Fund (MDYHX)
The top fund in our list this week is the BlackRock High Yield Municipal Fund (MDYHX). It generated a solid 19.14% trailing one-year total return with a 0.91% expense ratio and a 3.16% yield, making it the lowest cost fund on the list.
The fund’s strategy is to invest at least 80% of its assets in municipal bonds. While the fund may invest in muni bonds in any rating category, presently, portfolio management intends to invest at least 65% of the fund’s net assets in medium to low-quality bonds to maximize the fund’s overall yield.
The fund is co-managed by Ted Jaeckel, CFA, Head Portfolio Manager, Walter O’Connor, CFA, Managing Director, Co-Head and Portfolio Manager, and Michael Perilli. The team’s average tenure is about 10 years, but Mr. Jaeckel has the longest tenure at nearly 15 years, having worked with the firm since 1991, including his time at Merrill Lynch.
The fund’s portfolio has an average rating of BB and an effective duration of 9.4 years, which is slightly longer than the category average. These bonds are concentrated in education (16.2%) and health (13.3%) with about 10% of the portfolio being held in cash.
Learn more about different portfolio management concepts here.
2. Nuveen High Yield Municipal Bond Fund (NHMAX)
The number two fund on our list this week is the Nuveen High Yield Municipal Bond Fund (NHMAX). The fund delivered a solid 17.78% one-year total return with a 1.19% expense ratio and a 4.67% yield, making it the highest yielding fund on the list.
The fund is focused on non-investment grade and unrated municipal bonds with a weighted average maturity of more than 10 years. The team seeks to find good values by targeting municipal bond inefficiencies in its goal to private investors with a high level of tax-exempt income. The team further enhances yield by strategically using leverage through tender option bond transactions.
The fund is managed by John Miller, CFA, who leads the municipal fixed income strategic direction and investment perspectives for Nuveen with 28 years of industry experience. As a trusted public voice in discussing key municipal trends, he is a frequent guest on CNBC, Bloomberg, and Fox Business News.
The fund’s portfolio has an average credit rating of BB and an effective duration of 9.68 years, which is longer than the category average. The fund’s largest holdings include Energy Harbor Corp. (2.6%), Florida Development Finance Corp. (2.1%), and Public Finance Authority (1.6%) with less than 10% of its overall portfolio in cash.
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3. BNY Mellon High Yield Municipal Bond Fund (DHYAX)
The third place on the list belongs to the BNY Mellon High Yield Municipal Bond Fund (DHYAX). The fund generated a robust 17.12% trailing one-year return with a 0.92% expense ratio and a 3.25% yield, putting it in the middle of the road in terms of both expense and yield.
The fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in municipal bonds that provide income exempt from federal income tax. The fund normally invests at least 50% of its assets in municipal bonds rated BBB/Baa or lower by independent ratings agencies or the unrated equivalent as determined by the manager.
The fund is co-managed by Jeffrey Burger, Senior Portfolio Manager, and Daniel Barton, Portfolio Manager and Senior Analyst, who have been with the fund for 10 years and nine years, respectively.
The fund’s portfolio has an average credit rating of BB and an effective duration of 9.44 years, which is longer than the category average. The fund’s portfolio consists of 65.3% revenue bonds, 13.6% special tax bonds, and 5.1% general obligation bonds with less than 5% of its portfolio in cash.
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The Bottom Line
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Note: Trailing one-year total returns (daily) as of May 24, 2021.