With stocks down and investors scrambling for income, high-yield municipal bond funds are now the number-two mutual fund category over the past year (behind only bear market funds). The funds mainly own low-grade tax-free debt issued by states and municipalities. Because muni issuers rarely default, their bonds are less “junky” than their corporate counterparts, says David Hammer, comanager of Pimco High Yield Municipal Bond PYMDX.
Hammer and comanager Joe Deane take their cue from a committee that sets the big-picture strategy for all of Pimco’s funds. The pair then turn to a team of 17 analysts, who assign grades to each of the bonds they research. The fund’s recent results were boosted by a big-picture decision to avoid bonds from economically troubled Puerto Rico and the analyst-driven call to allocate a hefty slug of assets (15%, at last word) to tobacco bonds—debt backed by revenue from a 1998 pact between states and cigarette makers.
Hammer and Deane have become more defensive in reaction to a market they think has become overvalued. They’ve boosted the average quality of the fund’s holdings to triple-B-minus, the lowest investment-grade rating. They’ve also added more-liquid, easier-to-trade IOUs to take advantage of the greater volatility they expect in the junk muni market. The fund sports a current yield of 3.0%, equivalent to 5.3% for a taxpayer in the highest federal income tax bracket.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-
Take Charge of Retirement Spending With This Simple StrategyTo make sure you're in control of retirement spending, rather than the other way around, allocate funds to just three purposes: income, protection and legacy.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
Dividends Are in a RutDividends may be going through a rough patch, but income investors should exercise patience.
-
Municipal Bonds Stand FirmIf you have the cash to invest, municipal bonds are a worthy alternative to CDs or Treasuries – even as they stare down credit-market Armageddon.
-
High Yields From High-Rate LendersInvestors seeking out high yields can find them in high-rate lenders, non-bank lenders and a few financial REITs.
-
Time to Consider Foreign BondsIn 2023, foreign bonds deserve a place on the fringes of a total-return-oriented fixed-income portfolio.
-
The 5 Best Actively Managed Fidelity Funds to Buy Nowmutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
The 5 Safest Vanguard Funds to Own in a Bear Marketrecession The safest Vanguard funds can help prepare investors for continued market tumult, but without high fees.
-
The 12 Best Bear Market ETFs to Buy NowETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
-
5 of the Best Preferred Stock ETFs for High and Stable DividendsETFs The best preferred stock ETFs allow you to reduce your risk by investing in baskets of preferred stocks.
