Managing a National Municipal Bond Fund
Alexander Grant Managing Director, Investment Department Guardian Life Insurance Company of America and Portfolio Manager RS Tax-Exempt Fund
This chapter presents the questions that the investor should ask in selecting a total return national municipal bond fund and how a portfolio manager makes trading decisions for such a fund that is primarily highinvestment grade in structure and of relatively long duration.
Lipper would categorize a national municipal bond fund under its General Municipal Debt Funds whereas the Morningstar category is Municipal National Long. Funds in these categories generally purchase municipal bonds that are primarily investment grade. Investment grade is any bond that is rated either Baa or better by Moody’s or BBB- and better by S&P. Investment-grade issuers can run the gamut from general obligations of a state to investment-grade hospital bonds.
While the skills required in successfully managing such a fund are similar to those required in managing other tax-exempt funds such as specialty state, high-yield, and short-duration funds, long national investment-grade funds have their own unique characteristics and market forces. At a minimum the mantra of all tax-exempt funds is to maximize current income exempt from federal income taxes that is consistent with the preservation of capital.
Although this chapter focuses on portfolio management, it is important to examine other aspects of a national fund. ...