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5 High-Yield Muni Bond Funds to Combat Brexit Fears
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Global markets were hit hard after the Brexit referendum showed that the majority of voters were in favor of leaving the European Union. The surprising referendum results led investors to flee from stocks and reallocate their assets in safe-haven securities. Like the other safe-haven securities, municipal bonds also attracted investor attention, which pushed its yield to a 35-year low level.
As Brexit is likely to affect financial markets in the coming few days, it may be prudent for investors to invest in mutual funds that have a significant exposure to high-yield municipal bonds for stable returns along with attractive yield.
Brexit Impact on Markets
Although most of the recent poll results were more tilted toward a “Bremain”, U.K.’s referendum results came in favor of a Brexit. Moreover, after the referendum results, British Prime Minister David Cameron announced that he will resign by October. Following the results, the Dow posted its eighth highest point decline in history on Friday. Both the blue-chip index and the S&P 500 registered their largest percentage fall since Aug 2015 and the Nasdaq posted the worst percentage decline since Aug 2011.
Meanwhile, the fear-gauge index, CBOE Volatility Index (VIX) registered its highest percentage rise since Aug 8, 2011 on Friday. The German DAX and UK FTSE 100 fell 6.8% and 2.8%, posting their biggest slump since Nov 2008 and Jan 2016, respectively. Moreover, the pound continues to decline following Brexit results and hit a 31-year low level against the U.S. dollar on Monday. It also had a negative impact on oil prices. After declining nearly 5% on Friday, prices of WTI and Brent crude fell another 2.8% and 2.7%, respectively, with Brent decreasing to the lowest level since May 10 on Monday.
Muni Bond Attracting Investor Attention
The tax-free income appeal of muni bonds led investors to invest a significant portion of their assets in municipal debt securities following Brexit results. According to Municipal Market Data, yields on the benchmark 30-year triple A bond decreased to the 35-year low level of 2.08%. While stock mutual funds are striving to attract investors, muni bond funds registered an inflow of $1.4 billion of assets for the week ending Jun 22, according to Lipper.
It was the thirty-eighth consecutive week when muni bond funds witnessed inflows. These funds have attracted nearly $30.4 billion in the year-to-date frame. Also, high-yield muni bond funds attracted $321.2 million in the week ending Jun 22 after adding $323.8 million of assets a week earlier. Moreover, high-yield muni bond funds emerged as the best performer among muni bond funds categories over the past one-month as well as year-to-date frames, according to Morningstar. These funds returned 2% and 5.8% over the past one-month and year-to-date periods, respectively.
5 High-Yield Muni Bond Funds to Buy
It is speculated that the potential to provide a tax-exempted stable high-return is one of the main reasons behind the popularity of high-yield muni bond funds. Also, a low rate environment prevailing throughout the globe is also playing an important role in attracting foreign investment in these funds. High-yield muni debt securities are believed to provide steady returns exempted from federal taxes and in many cases from state taxes as well. This is the reason why investors prefer these securities in a choppy market. Though high-yield bonds that are rated below investment grade are believed to be riskier than investment grade bonds, a well-diversified portfolio of these securities has a lower level of risk.
Against this backdrop, we have selected five high-yield mutual funds that either carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date, one-year and three-year annualized returns. They also have minimum initial investment within $5000, low expense ratios and no sales load. Plus, these have an impressive annual dividend yield.
Oppenheimer Rochester High Yield Muni Y (ORNYX - Free Report) invests a large chunk of its assets in municipal securities of state governments, the District of Columbia and their affiliates that provide income free from regular federal and state taxes. ORNYX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.59%, lower than the category average of 0.94%. The fund has year-to-date, one-year and three-year annualized returns of 8.5%, 12.7% and 8.5%, respectively. Its annual dividend yield is 6.3%.
Invesco High Yield Muni Y (ACTDX - Free Report) invests a minimum of three-fourth of its assets in high yielding municipal debt securities. ACTDX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.61%, lower than the category average of 0.94%. The fund has year-to-date, one-year and three-year annualized returns of 6.8%, 12.5% and 9.3%, respectively. Annual dividend yield of the fund is 4.8%.
Lord Abbett High Yield Municipal Bond F (HYMFX - Free Report) invests the lion’s share of its assets in municipal debt securities that are believed to provide return exempted from federal income tax. It is expected to maintain a dollar-weighted average maturity of 10 to 25 years. HYMFX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.73%, lower than the category average of 0.94%. The fund has year-to-date, one-year and three-year annualized returns of 6.6%, 9.1% and 7.7%, respectively. Its annual dividend yield is 4.4%.
AB High Income Municipal Advisor (ABTYX - Free Report) invests a major portion of its assets in non-investment grade municipal debt securities that are believed to provide interest income free from federal income tax. ABTYX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.53%, lower than the category average of 0.94%. It has year-to-date, one-year and three-year annualized returns of 6.8%, 11.8% and 8.8%, respectively. The fund has an annual dividend yield of 3.9%.
T. Rowe Price Tax-Free High Yield (PRFHX - Free Report) invests a large share of its assets in municipal debt securities that are rated non-investment grade and believed to provide return exempted from federal income tax. PRFHX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.69%, lower than the category average of 0.94%. The year-to-date, one-year and three-year annualized returns of the fund are 5.9%, 9.7% and 7.7%, respectively. The fund has an annual dividend yield of 3.7%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.
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5 High-Yield Muni Bond Funds to Combat Brexit Fears
Global markets were hit hard after the Brexit referendum showed that the majority of voters were in favor of leaving the European Union. The surprising referendum results led investors to flee from stocks and reallocate their assets in safe-haven securities. Like the other safe-haven securities, municipal bonds also attracted investor attention, which pushed its yield to a 35-year low level.
As Brexit is likely to affect financial markets in the coming few days, it may be prudent for investors to invest in mutual funds that have a significant exposure to high-yield municipal bonds for stable returns along with attractive yield.
Brexit Impact on Markets
Although most of the recent poll results were more tilted toward a “Bremain”, U.K.’s referendum results came in favor of a Brexit. Moreover, after the referendum results, British Prime Minister David Cameron announced that he will resign by October. Following the results, the Dow posted its eighth highest point decline in history on Friday. Both the blue-chip index and the S&P 500 registered their largest percentage fall since Aug 2015 and the Nasdaq posted the worst percentage decline since Aug 2011.
Meanwhile, the fear-gauge index, CBOE Volatility Index (VIX) registered its highest percentage rise since Aug 8, 2011 on Friday. The German DAX and UK FTSE 100 fell 6.8% and 2.8%, posting their biggest slump since Nov 2008 and Jan 2016, respectively. Moreover, the pound continues to decline following Brexit results and hit a 31-year low level against the U.S. dollar on Monday. It also had a negative impact on oil prices. After declining nearly 5% on Friday, prices of WTI and Brent crude fell another 2.8% and 2.7%, respectively, with Brent decreasing to the lowest level since May 10 on Monday.
Muni Bond Attracting Investor Attention
The tax-free income appeal of muni bonds led investors to invest a significant portion of their assets in municipal debt securities following Brexit results. According to Municipal Market Data, yields on the benchmark 30-year triple A bond decreased to the 35-year low level of 2.08%. While stock mutual funds are striving to attract investors, muni bond funds registered an inflow of $1.4 billion of assets for the week ending Jun 22, according to Lipper.
It was the thirty-eighth consecutive week when muni bond funds witnessed inflows. These funds have attracted nearly $30.4 billion in the year-to-date frame. Also, high-yield muni bond funds attracted $321.2 million in the week ending Jun 22 after adding $323.8 million of assets a week earlier. Moreover, high-yield muni bond funds emerged as the best performer among muni bond funds categories over the past one-month as well as year-to-date frames, according to Morningstar. These funds returned 2% and 5.8% over the past one-month and year-to-date periods, respectively.
5 High-Yield Muni Bond Funds to Buy
It is speculated that the potential to provide a tax-exempted stable high-return is one of the main reasons behind the popularity of high-yield muni bond funds. Also, a low rate environment prevailing throughout the globe is also playing an important role in attracting foreign investment in these funds. High-yield muni debt securities are believed to provide steady returns exempted from federal taxes and in many cases from state taxes as well. This is the reason why investors prefer these securities in a choppy market. Though high-yield bonds that are rated below investment grade are believed to be riskier than investment grade bonds, a well-diversified portfolio of these securities has a lower level of risk.
Against this backdrop, we have selected five high-yield mutual funds that either carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date, one-year and three-year annualized returns. They also have minimum initial investment within $5000, low expense ratios and no sales load. Plus, these have an impressive annual dividend yield.
Oppenheimer Rochester High Yield Muni Y (ORNYX - Free Report) invests a large chunk of its assets in municipal securities of state governments, the District of Columbia and their affiliates that provide income free from regular federal and state taxes. ORNYX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.59%, lower than the category average of 0.94%. The fund has year-to-date, one-year and three-year annualized returns of 8.5%, 12.7% and 8.5%, respectively. Its annual dividend yield is 6.3%.
Invesco High Yield Muni Y (ACTDX - Free Report) invests a minimum of three-fourth of its assets in high yielding municipal debt securities. ACTDX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.61%, lower than the category average of 0.94%. The fund has year-to-date, one-year and three-year annualized returns of 6.8%, 12.5% and 9.3%, respectively. Annual dividend yield of the fund is 4.8%.
Lord Abbett High Yield Municipal Bond F (HYMFX - Free Report) invests the lion’s share of its assets in municipal debt securities that are believed to provide return exempted from federal income tax. It is expected to maintain a dollar-weighted average maturity of 10 to 25 years. HYMFX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.73%, lower than the category average of 0.94%. The fund has year-to-date, one-year and three-year annualized returns of 6.6%, 9.1% and 7.7%, respectively. Its annual dividend yield is 4.4%.
AB High Income Municipal Advisor (ABTYX - Free Report) invests a major portion of its assets in non-investment grade municipal debt securities that are believed to provide interest income free from federal income tax. ABTYX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.53%, lower than the category average of 0.94%. It has year-to-date, one-year and three-year annualized returns of 6.8%, 11.8% and 8.8%, respectively. The fund has an annual dividend yield of 3.9%.
T. Rowe Price Tax-Free High Yield (PRFHX - Free Report) invests a large share of its assets in municipal debt securities that are rated non-investment grade and believed to provide return exempted from federal income tax. PRFHX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.69%, lower than the category average of 0.94%. The year-to-date, one-year and three-year annualized returns of the fund are 5.9%, 9.7% and 7.7%, respectively. The fund has an annual dividend yield of 3.7%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>