This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Municipal Funds That Pay Rich Yields

To avoid trouble, he put 15% of assets in cash and another 15% in AAA-rated securities backed by Fannie Mae (FNMA) and other government agencies. The safe assets helped cushion the portfolio. Late in the year, Walls put the cash to work, buying investment-grade issues that sold at depressed prices. In 2009, the holdings rebounded, and Ivy returned 32.3% for the year, outdoing peers.

These days Walls is concerned that interest rates could rise in coming years, as many economists expect. When rates rise, bond prices tend to fall. For protection, Walls is holding some floating-rate securities. Those raise their payouts as interest rates climb.

A steady fund is MFS Municipal High Income (MMHYX). The portfolio managers stay diversified, often maintaining slightly higher credit quality than typical peers. Most often the cautious approach has succeeded. The fund has finished in the top half of its category for eight consecutive years. During the past five years, MFS returned 7.2% annually. "Some of our aggressive competitors have great years and terrible years," says portfolio manager Geoffrey Schechter. "We want to be above-average in all markets."

In the past, the fund often had slight overweight positions in hospitals and other health care issuers. But lately the fund is reducing its positions because of concerns that Congress could cut Medicare, reducing the reimbursements for health providers.

MFS is overweight tobacco bonds. Those are backed by payments that tobacco companies make to states to cover health costs of smoking. The bonds have rallied lately as investors have become more confident that the states would receive enough income to cover interest costs.

Another top performer is Delaware National High-Yield Municipal (CXHYX). During the past five years, the fund returned 8.1% annually. Portfolio manager Steve Czepiel aims to stay broadly diversified. He typically keeps the sector weightings in his portfolio close to the average figure of peers. The goal is to outperform by picking better securities. "We have avoided credit problems, and that has helped our performance," he says.

Czepiel is wary of Puerto Rico's general obligation bonds, which are backed by general tax revenue. Moody's recently downgraded the bonds because of budget problems. But he likes Puerto Rican bonds that are backed by sales taxes. Those are unlikely to default, and they sell at bargain prices, he says.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $92.23 -1.10%
FB $119.00 1.00%
GOOG $708.28 0.98%
TSLA $215.23 1.70%
YHOO $37.11 0.46%


Chart of I:DJI
DOW 17,685.61 +24.90 0.14%
S&P 500 2,050.59 -0.04 -0.00%
NASDAQ 4,711.58 -5.5140 -0.12%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs