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 three 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.
Vanguard New York Long-Term Tax-Exempt Investor VNYTX generally invests in municipal debt securities of New York state, local governments and other affiliates. VNYTX invests a major portion of its assets in securities that are expected to provide returns exempted from federal and New York state taxes. VNYTX generally maintains a dollar-weighted average maturity between 10 and 25 years. Vanguard New York Long-Term Tax-Exempt Investor has three-year annualized returns of 2.1%.
Adam M. Ferguson is the fund manager of VNYTX since 2013.
Fidelity Advisor California Municipal Income A FCMAX seeks tax-exempted, high current income. FCMAX invests a large share of its assets in municipal debt securities that are rated as investment-grade and expected to pay interest income free from federal and California personal income taxes. FCMAX invests a minimum of one-fourth of its assets in municipal securities.Fidelity Advisor California Municipal Income A has three-year annualized returns of 1.5%.
FCMAXhas an expense ratio of 0.80% compared with the category average of 0.86%.
Wells Fargo (NYSE:WFC) Municipal Bond A WMFAX invests the majority of its net assets in municipal securities, whose interest is exempted from federal tax. The fund also invests up to 20% of its assets in securities on whose interest, federal AMT may be applicable. Wells Fargo Municipal Bond A has three-year annualized returns of 2.6%.
As of January 2019, WMFAX held 690 issues, with 1.52% of its assets invested in FLORIDA ST 4%.
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