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chang
Contributor ○○○

Best I/G muni bond fund

I'm going to hold off funneling new money into taxable bonds, and go back to munis, where I left off last year. I'm full up on HY (PHMIX and VWALX) and have very little I/G. My only I/G fund is PFMIX. A quick comparison shows this fund still looks better than FTABX, which I have long considered a very solid I/G muni fund (in the medium-long duration space).

Anything better than PFMIX worth looking at? Or stick with it and add...? TIA.

Note: rightly or wrongly I am sensitive to fund fees on fairly low-yielding bond funds. Hence, I doubt I would consider anything with higher fees than PFMIX [0.55% gross, 0.44% net], which are already high compared to VG and Fido funds.

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19 Replies
chang
Contributor ○○○

Re: Best I/G muni bond fund

Anybody own one of these? Results look good, expenses - eh, OK.

Hartford Municipal Opportunities I HHMIX

Hartford Municipal Income I HMKIX

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Lawyerli
Follower ○○○

Re: Best I/G muni bond fund

Have you considered VWIUX?  Duration (4.9 yrs.) is shorter than Fidelity (6.37) and Pimco (5.75), and credit quality is higher (70% combined AAA and AA, vs. 50% and 47% in the Fidelity and Pimco finds, respectively).  A pretty plain vanilla ‘ballast’ fund - I have it paired with vwalx, like yourself, for a little extra return, and have been happy with both.  The Fidelity and Pimco finds have outperformed it over 10 years, but VWIUX’s .09 ER makes up for at least some of that underperformance.

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Fishingrod
Explorer ○○

Re: Best I/G muni bond fund

If one goes back further than 10 years including the full 2007-2008 downturn VWIUX/VWITX Vanguard's intermediate tax exempt fund has outperformed all the aforementioned funds including the Hartford funds. Edit: FTABX has outperformed since it's inception 4/10/2001.

One can go all the way back to 1997 and still the out- performance still holds. Losing less money on draw downs has helped both FTABX and VWIUX  hold it's edge.

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Markyarts
Follower ○○○

Re: Best I/G muni bond fund

Don't know a lot about the Hartford Funds, but another article posted this morning lists firms that have "misrepresented" classifications and Hartford had a high % of their funds classified incorrectly according to the paper that was posted. 

 

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chang
Contributor ○○○

Re: Best I/G muni bond fund

Thanks for the feedback ... I made an impulse buy of $50k VWIUX just before the close. Plan to hold loooong term.
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Juancho101
Follower ○○

Re: Best I/G muni bond fund

I have a question regarding muni funds. And please forgive my absolute ignorance.

If this type of Funds are tax free and the return is higher than other non traditional bond funds (9% vs 3.5% roughly) why would anyone in a taxable account opt for the later? 

I'm asking because I'm pretty heavy in SEMPX (see my other post) in a taxable account. Am I being dumb not moving to a muni bond fund? do they have more risk?

Thanks.

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Win1177
Participant ○○

Re: Best I/G muni bond fund

In our taxable accounts (mine and my wife’s) we hold about 2/3 of our bond money in VWIUX and the remaining 1/3 is in VWALX. This combination will never “shoot the lights out”, but they are “steady as she goes” and tend to do very well when equities sell off. Plus, that monthly income will be nice once we retire. We’re in high tax brackets, and looks like we will still be in pretty high brackets even when I retire, so makes sense for us. Currently reinvesting all interest/ dividends, but will convert to pay cash when we retire. 

If you’re looking for a solid SAFE intermediate term Muni bond fund, VWIUX is hard to beat, IMHO. Especially if you add a smaller slice of VWALX to help add some higher yield. 

Win
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yogibearbull
Valued Contributor

Re: Best I/G muni bond fund


@Juancho101 wrote:

I have a question regarding muni funds. And please forgive my absolute ignorance.

If this type of Funds are tax free and the return is higher than other non traditional bond funds (9% vs 3.5% roughly) why would anyone in a taxable account opt for the later? 

I'm asking because I'm pretty heavy in SEMPX (see my other post) in a taxable account. Am I being dumb not moving to a muni bond fund? do they have more risk?

Thanks.


Be specific. A 9% yield/return muni vs 3.5% yield/return taxable are probably apples and oranges kind of funds.

YBB
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Gary1952
Contributor ○○

Re: Best I/G muni bond fund

It sounds as if you have total return (at 9%) confused with yield (interest paid out at 3.5%)


@Juancho101 wrote:

I have a question regarding muni funds. And please forgive my absolute ignorance.

If this type of Funds are tax free and the return is higher than other non traditional bond funds (9% vs 3.5% roughly) why would anyone in a taxable account opt for the later? 

I'm asking because I'm pretty heavy in SEMPX (see my other post) in a taxable account. Am I being dumb not moving to a muni bond fund? do they have more risk?

Thanks.


 

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chang
Contributor ○○○

Re: Best I/G muni bond fund


@Juancho101 wrote:

I have a question regarding muni funds. And please forgive my absolute ignorance.

If this type of Funds are tax free and the return is higher than other non traditional bond funds (9% vs 3.5% roughly) why would anyone in a taxable account opt for the later? 

I'm asking because I'm pretty heavy in SEMPX (see my other post) in a taxable account. Am I being dumb not moving to a muni bond fund? do they have more risk?

Thanks.


“Like for like” the returns of municipal bonds are usually lower than taxable bonds. Divide by your tax bracket to calculate the “tax adjusted” rate of the muni bond, to make the comparison apples to apples.

I hold both kinds in my taxable account, largely for the sake of diversification and decorrelation.

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Juancho101
Follower ○○

Re: Best I/G muni bond fund

Just to clarify

FTABX 1 year return 9.76% (category 8.97%)

SEMPX 1 year return 3.68 (category 3.17%)

I'm sure I'm missing something here.

Thanks for the answers. Super useful.

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Highlighted
chang
Contributor ○○○

Re: Best I/G muni bond fund

Total return mixes NAV change and dividend reinvestment. It’s an important number, to be sure, but certainly not a reliable forward forecaster! If you want to compare bonds looking forward, putting aside potential valuation anomalies, then compare SEC yields or distribution yields.
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Juancho101
Follower ○○

Re: Best I/G muni bond fund

Thanks for the info. I can't find that data on e-trade, not sure if it's under a different definition.

My tax bracket is 24% federal and 9.4% state. 33.4% total.

Taking this into consideration, is it worth it moving to muni funds?

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chang
Contributor ○○○

Re: Best I/G muni bond fund


@Juancho101 wrote:

Thanks for the info. I can't find that data on e-trade, not sure if it's under a different definition.

My tax bracket is 24% federal and 9.4% state. 33.4% total.

Taking this into consideration, is it worth it moving to muni funds?


That should be easy enough to decide, after you identify which bond funds in both categories interest you.

For example, the Fido Muni fund you mentioned, FTABX, has a duration of 6.10 years and an SEC yield of 1.80% (link). You can adjust the yield of FTABX for your tax bracket: the Taxable-Effective Yield is 1.80/0.666 = 2.70%.

Now take the taxable bond fund PIGIX, which currently has a duration of 7.16 years and an SEC yield of 2.92% (link). Thus, PIGIX's yield is slightly more attractive than FTABX's even on a tax-adjusted basis.

But PIGIX's yield is on the high side for a taxable fund because it is all corporate bonds. If you take a more indexy bond fund with Treasuries and agency bonds, the yield will be lower. For example, Vanguard's I/T index fund VBILX has a duration of 6.3 years and an SEC yield of 2.08% (link). Comparing VBILX vs. FTABX, the muni bond fund's yield now looks (much) more attractive.

So the results of the comparison are sensitive to which funds you choose. There's not a clear, universal answer.

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chang
Contributor ○○○

Re: Best I/G muni bond fund


@Win1177 wrote:

In our taxable accounts (mine and my wife’s) we hold about 2/3 of our bond money in VWIUX and the remaining 1/3 is in VWALX. ..... If you’re looking for a solid SAFE intermediate term Muni bond fund, VWIUX is hard to beat, IMHO. Especially if you add a smaller slice of VWALX to help add some higher yield. 


It's hard to argue with this. I have made two buys of VWIUX in the last two days, and will keep building.

My ratio of HY:IG (as measured by PHMIX+VWALX : PFMIX+VWIUX) is around 5:1, so I am way HY-lopsided compared to you. However, if I add to IG going forward, that ratio will drift down.

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Win1177
Participant ○○

Re: Best I/G muni bond fund

Chang, 

We take our “risk” with equities, we’re 70-75% equity and have been somewhere between 70-85% equity for decades. It’s allowed us to accumulate a large portfolio.

I look at the “bond side” as primarily more “safety and stability”, with return being important as long as we have the safety and stability. That’s why I keep things about 2/3 investment grade, 1/3 higher yield. Even in the high yield space, we tend to be in “higher quality” high yield- VWALX and VWEAX (in ROTH accounts).

Win
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AluminumMan
Explorer ○

Re: Best I/G muni bond fund

Chang,

I use MTBIX.

John

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chang
Contributor ○○○

Re: Best I/G muni bond fund


@AluminumMan wrote:

Chang,

I use MTBIX.

John


MTBIX probably falls squarely into the L/T Muni category.

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Fishingrod
Explorer ○○

Re: Best I/G muni bond fund

Hi Chang,

You mentioning SEC yields made me look at the yield curve today. I hope I can post it#M*.

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=y...https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=y... 

It has flattened out on the short-intermediate due to the recent FED rate cut as you know. 

This is how I keep an eye on movements in the U.S. yield curve. And of course other bonds tend to follow on their own level.

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