Mutual Fund

Selling Vanguard Municipal Bond Mutual Funds

Here are some Municipal Bond Mutual Funds that we have researched for our portfolio and recently sold. We love Vanguard, but a fund is a fund. The fourth quarter of 2010 serve as a wake-up call. Interest rates inched up and consequently bond values fell. Time to get our house in order before another spike. John Carbone, the manager of this fund also left in January 2011 to move to Vanguard’s municipal money market team. Mat Kiselak has taken over on an interim basis.

Statistics are from 1/11/2011.

Vanguard California Intermediate Term Tax Free Fund (VCAIX)
Exp Ratio: 0.20% – Duration: 5.6 Years – Average Credit quality: A – 2010 Q4 return: -4.08%
Morningstar Rating: 4 Star
Note: Very low expense ratio, but longer duration than Fidelity’s FCSTX fund (2010 Q4 return: -1.39%), and lower average credit quality, so we decided to sell this fund and purchase another with a shorter duration. We are looking for the duration around 2 to 3 years and average credit quality of AA.

Comparing Fidelity and Vanguard California Intermediate Term municipal bond mutual funds. We can see the effect of longer duration net asset value fluctuations. The Vanguard fund does yield more though. We can see how much value the Vanguard fund has lost over the last couple months due to its longer duration holdings.

Vanguard High-Yield Tax-Exempt Fund (VWAHX)
Exp Ratio: 0.20% – Duration: 7.4 Years – Average Credit quality: A- 2010 Q4 return: -4.81%
Morningstar Rating: 4 Star
Note: Very low expense ratio, but long duration and low average credit quality, so we decided to sell this fund and purchase another one with a shorter duration.

Vanguard Intermediate Term Tax-Exempt Fund (VWIUX)
Exp Ratio: 0.12% – Duration: 5.6 Years – Average Credit quality: AA – 2010 Q4 return: -3.58%
Morningstar Rating: 5 Star
Note: Having five stars and high credit quality does not insulate you from severe losses, so we decided to sell this fund and purchase another one with a shorter duration.

Charting the three Vanguard funds we went out of and the two Fidelity funds we are concentrating on, we get the following chart:

Also see Morningstar’s favorite National intermediate term municipal bond fund picks and California intermediate term municipal bond fund picks.

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