NEW YORK (TheStreet) -- Closed-end municipal bond funds had a great 2014, climbing 19%. However, according to Chris Larsen, director of closed-end funds at Legg Mason, that performance is unlikely to be duplicated in 2015.
That's not to say the asset will do poorly. He's still looking for the group to do well in the new year.
While rising interest rates tend to put pressure on closed-end funds, Larsen says the effect of higher rates is likely already priced into the asset because many investors anticipate the Federal Reserve will hike interest rates sometime in 2015.
As for energy, Larsen said investors could consider closed-end energy funds as a potential investment. The group has gotten sold off as oil prices have declined over 50% from their highs in June. If investors use caution and opt for master limited partnerships and midstream plays instead, they should do fine. Those industries focus more on oil volume rather than on oil prices, although at some point lower prices could lead to lower volume, Larsen said.
There's also opportunity in the high-yield market, even with energy making up 25% of the group. Choosing the right issue is the key, Larsen stressed. If investors pick the right funds and right issues, then they should do just fine investing in high-yield funds.
For comparison, the iShares High Yield Corporate Bond ETF (HYG - Get Report) has fallen 4.15% in the past 12 months, while the Western Asset Managed Municipal Fund (MMU - Get Report) has climbed 9.9% in the past year.
-- Written by Bret Kenwell