A Fidelity Municipal Bond Mutual Fund just recorded a Morningstar rating reduction. The FSTFX tax-free bond was reduced from four stars to three stars. This is not a good sign, but not a surprise because of the deteriorating credit quality of many municipal bonds. We now need to determine whether we would like to exchange into a different municipal bond mutual fund that has a higher credit quality.
Fidelity Short-Intermediate Muni Income Bond Fund (FSTFX)
Exp Ratio: 0.50% – Duration: 2.7 Years – Average Credit quality: A – 2010 Q4 return: -1.1%
Morningstar Rating: 3 Star
Note: Reasonable duration but slightly high expense ratio. Vanguard doesn’t have a California municipal bond mutual fund with this short duration.