Short Term Muni Funds

msf

I skip the ultra short, because they pay so little that a taxable bank account (paying 1%) is clearly better.

In the short to short/intermediate range, I use VMLTX/VMLUX as my benchmark. It's toward the upper end of the range in duration (2.5 years) and maturity (3.1) years. That (plus very low fees) gives it one of the higher SEC yields (0.94%) and one of the higher 1 year returns (1.05%). All while maintaining a AA average rating (many funds tend to be A or BBB).

Using those criteria (solid SEC yield, good 1 year return indicating some stability, and A or better credit), I'm finding few alternatives. What I do see are:

NEARX (SEC yield 0.79% as of 9/30, 2.6 year duration, 2.7 year maturity, A rated)
FSTFX (SEC yield 0.85% as of 11/30, 2.8 year duration, 3.2 year maturity, A rated)
BRMIX (new fund, 2.2 year duration, 2.7 year duration, per M*)

I'm curious about the latter - it's a new fund from a fine bond fund house (Baird). But it isn't using their usual managers. Rather, two of the three managers came over from BMO this year, where they'd been managing BASFX.

Like Baird funds in general, it is allowed to hold some junk (with this fund, 10%, including D rated bonds). But looking at its holdings, most bonds are trading at a premium, or at worst a very slight discount, to par. That suggests that these are all high grade bonds, and the portfolio has little credit risk.

The managers seemed to do well with BASFX (which is itself another fund to look at - it's available load waived, but the risk is new management, which is one of the reasons for looking at BRMIX instead of BASFX).

At least there seem to be choices for good short term muni funds.

heezsafe

@msf
1. Hey, what's going on with your left index finger? It's BTMIX.
2. Actually, all 3 amigos are former BMO.
http://www.mutualfundobserver.com/discuss/discussion/21567/baird-advisors-adds-municipal-bond-team-with-some-cred#latest

msf

Got to learn to place my hands at the right place on the keyboard, I guess.

I didn't count Joe Czechowicz among the managers from BMO, because while he did come from BMO, he didn't seem to manage any funds there.funds.

Thanks for the link. It confirms that Czechowicz was an analyst at BMO.

Three months into the new fund, the portfolio looks more like a short/intermediate fund than the short term fund they ran at BMO. Beyond that, hard to tell too much. Though reading the prospectus, another plus is that it is AMT-free (well, at the 80% that they'll commit to).

New funds are usually a risk. This one may be less so - a good team working at a good bond house.

00BY

I have been in BMBIX for a while and I am happy with it. It is pretty conservative. But it is an intermediate term fund.

heezsafe

@msf So disappointing; I just never had you pegged as a performance chaser.
http://www.indexologyblog.com/2015/12/15/the-rieger-report-munis-lead-the-pack-in-the-final-lap/?curator=thereformedbroker&utm_source=thereformedbroker

Another fund you might throw into the mix is PRFSX. It could be more conservative than the Vanguard fund (for now), but it would give you some flexibility re. inflation if paired with BTMIX. Looks like core CPI inflator is starting to creep up, and BTMIX will not respond to this if it continues; PRFSX will. Very stable NAV (but ~4% subject to AMT).
http://www3.troweprice.com/fb2/fbkweb/performance.do?ticker=PRFSX

The fund cited by OOBY, BMBIX, will be most like the one they ran at BMO (in a subadvisory relationship). I would not be concerned about the Baird transition. Same town, they've known each other for quite some time, same sensibilities.

bee

Thanks for mentioning BTMIX...seems like an long time outperfomer.

Not a pure muni play, but two funds that combine equities with muni bonds are USBLX and VTMFX. Both are tax efficient and both are on the conservative side of market risk. I prefer the expense ratio of VTMFX.

I would imagine creating a portfolio of 50% Index like equity funds and 50% muni funds would be another way to achieve this mix. I can cut USBLX's expense ratio (.85%) in half by owning equal parts of USAA Tax Exempt Intermediate Muni Fund, USATX (.55%), and USAA S&P 500 Index Fund, USSPX (.25%). USAA also has a short and a long muni flavor (USSTX & USTEX).

Article on USATX:
morningstar.com/cover/videocenter.aspx?id=711486

msf

Thanks for the positive comments on the (now) Baird team.

Hardly a performance chaser. Just playing year end tax games and have cash on hand.

This is one of those unusual (but not extremely rare) years where a good year is being followed by a flat year. Pent up cap gains in funds are being realized, resulting in distributions sometimes exceeding share appreciation (virtually zero for the year). In those cases, it's better selling before dividends are distributed.

For other tax reasons (and also that I expect more stability in shorter munis than shorter taxable funds), I'm looking more at short/intermediate muni funds than taxable funds. Seems a good idea to diversify in the space (literally avoiding putting all of my "eggs" in a single basket, i.e. fund), so I'm poking around.

Regarding PRFSX - as you wrote, it seems a conservative, solid fund. M* likes it (gold rated), which could be a negative mark for some here. Though with an SEC yield of 0.62%, I think bank accounts (1% taxable) are better for now - guaranteed principal, and may even pay more if/when inflation (or Ms. Yellen) makes a showing. Savings accounts may be interesting to watch over the remainder of the year.

msf

@bee - Thanks for the information. I was familiar with VTMFX, but not with USBLX.

These don't really fit my current needs (as explained above) or my style, but would be a nice fit for some people. Like you, I generally prefer to control my own mix (separate stock and bond funds), though in recent years, I've become more open to global funds (as opposed to separate foreign and domestic funds), and even to world allocation funds (balanced funds on a global scale).

It depends on what value they bring, and how well they fit into my portfolio.

willmatt72

I've been looking at these short term muni funds as an option for near-cash holdings. BASFX is an interesting option. The managers are the same crew that runs MITFX, a very good intermediate muni fund.