Last week’s (November 15-19, 2010) massive Municipal bond Mutual Fund outflow of $4.78 billion make the headlines. The outflow was the largest on record. 66% of municipal bonds are owned by individual investors, the balanced owned by large institutional investors. This is another danger of owning municipal bond mutual funds rather than individual bonds. We have written about these municipal bond mutual funds dangers in the past.
It is clear that investors are nervous and are ready to rapidly yank money out when any problem occurs. The additional bond offerings that increased supply may have been a catalyst to start the decline.
Morningstar has some municipal bond mutual fund recommendations.
Muni bond ETF’s had an even rougher time with some trading below their net asset value.
Envision Capital’ s Marilyn Cohen wrote that investors need to learn from this and move towards individual issues.
See how the Vanguard California intermediate term municipal bond fund (VCAIX) performed: