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I appreciate your informative posts on junk bond funds. I don't know whether you've mentioned VWALX, but I'd be interested in your opinion on it, and on VWIUX: are these sensible holdings in the current environment for those of us who want Federally tax-exempt income, in you opinion?
Walt, VWALX has never been on my radar screen this year primarily because, at least by Morningstar, it is listed in the Intermediate Muni National category. It's had a good year and right at the top of that category but were it in the High Yield muni category not so hot. VWIUX also is listed in that same category as VWALX albeit its performance hasn't been anything like VWALX. I am assuming you have to hold only Vanguard offerings? If you are a long term holder I can't offer much of value. Albeit, I believe you might be better off in a muni fund from a company that specializes more in that area, ala Nuveen or maybe Eaton Vance. The one thing holding up munis from suffering some of the recent demise in other rate sensitive issues is a shortage of issuance. I can't be of much help in muni-land to you because I am more of a short term momentum trader/investor. It just so happened that this year the momentum has been in junk munis as opposed to junk corporates or other areas and that is why I have been talking about them so much.
Thanks for your helpful comments, Junkster. I'd just assumed VWALX was in the High Yield category because of its name and e.g. YTD return, and although I know it's not at the top of the High Yield category, I thought that was because it's more conservative. My assets are at Vanguard, and I am attracted by their funds' low expenses, especially in this low return environment (although the top High Yield funds have indeed done very well this year).
I'll be interested to hear what you do when the "last man standing" High Yield munis are no longer standing.
Thanks for your helpful comments, Junkster. I'd just assumed VWALX was in the High Yield category because of its name and e.g. YTD return, and although I know it's not at the top of the High Yield category, I thought that was because it's more conservative. .
Not an asset class I know anything about, but it seems that even the Hi Yield Muni Funds/"Junk" Muni Funds have the bulk of their assets in investment grade bonds.
Take for example a junk muni fund that has been mentioned on MFO many times, Eaton Vance High-Yield Municipal Inc I EIHYX, which is in Morningstar's Hi Yield Muni category.
Only 16% of the bonds are rated below investment grade. Interesting.
Robert, you are right in that junk munis are a different animal than junk corporates. The average junk muni fund has over 50% of their assets in investment grade while the average junk corporate has only around 10%. Morningstar I believe counts the "not rated" sector as junk so EIHYX and the other junk munis who all have unrated bonds will have a higher % there than just adding up BB to below B.
VWALX behaves more like the long-term muni fund, VWLUX. VWALX's price moves up and down slightly more than VWLUX and its payout is slightly more than the long-term fund. But VWALX holds a small amount of "private activity" bonds, which are subject to AMT. Also, VWALX may under perform other high-yield muni funds because it has a more conservative portfolio (no Puerto Rican bonds, etc), and VWALX (and VWLUX) have average effective maturities of less than 7 years (putting them in Morningstar's intermediate catagory) which is far less than the longer maturities in other funds.
On the other hand, while the plain intermediate fund, VWIUX, pays less, its daily price movement is much smaller. At times, I've owned all three; currently I have a good amount of VWALX.
I have owned vwalx since 1998. it goes up and it goes down; low expense ratio and can't go wrong with vanguard; in big melt down in 2008 it dropped to around low 9.00 range; luckily I bought more; I am primarily buy and hold and tend to buy mutual funds for bonds and individual stocks; my two cents worth
Comments
What is 'sensible' to you?
If you are a long term holder I can't offer much of value. Albeit, I believe you might be better off in a muni fund from a company that specializes more in that area, ala Nuveen or maybe Eaton Vance. The one thing holding up munis from suffering some of the recent demise in other rate sensitive issues is a shortage of issuance. I can't be of much help in muni-land to you because I am more of a short term momentum trader/investor. It just so happened that this year the momentum has been in junk munis as opposed to junk corporates or other areas and that is why I have been talking about them so much.
I'll be interested to hear what you do when the "last man standing" High Yield munis are no longer standing.
Take for example a junk muni fund that has been mentioned on MFO many times, Eaton Vance High-Yield Municipal Inc I EIHYX, which is in Morningstar's Hi Yield Muni category.
Only 16% of the bonds are rated below investment grade. Interesting.
On the other hand, while the plain intermediate fund, VWIUX, pays less, its daily price movement is much smaller. At times, I've owned all three; currently I have a good amount of VWALX.
While muni bond issuing is drying up this could impact them.
http://www.ritholtz.com/blog/2014/09/high-quality-liquid-assets-and-munis/
http://www.zacks.com/stock/news/145804/Municipal-Bonds-to-Lose-LiquidAsset-Status-2-Banks-to-Avoid