Municipal Bond Mutual Fund

Fidelity Municipal Bond Mutual Fund Credit Quality reduction

fidelity tax-free municipal bond fund

Two Fidelity Municipal Bond Mutual Fund recorded a Credit Quality reduction.  The FSTFX and FCSTX tax-free bond funds both have average credit qualities of A down from AA, but still investment-grade. Morningstar’s fixed income style box has the fund falling to a medium quality from high-quality. 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: 4 Star
Note: Reasonable duration but slightly high expense ratio. Vanguard doesn’t have a California municipal bond mutual fund with this short duration.

Fidelity California Short-Intermediate Term Tax Free Bond Fund (FCSTX)
Exp Ratio: 0.35% – Duration:  3.1 Years – Average Credit quality: A – 2010 Q4 return: -1.39%
Morningstar Rating: 4 Star
Note: Reasonable duration and expense ratio. Vanguard doesn’t have a California municipal bond mutual fund with this short duration.

When running a Morningstar fund screen looking for short-term municipal bond mutual funds with expense ratios equal to or less than 0.50%, no loads, average credit quality of AA or better, and durations of less than five years, we find the following funds:

Morningstar municipal bond fund screener

If you drill down and closely examine this the small list, you will find very few viable options. The Goldman Sachs fund has a $10 million minimum while the two PIMCO funds have a $1 million minimum. The DFA fund is only sold through advisers.

The to Vanguard municipal bond mutual funds options (VMLTX, VWSUX) are known entities that we have owned.

Municipal bond Mutual fund possibilities

The Columbia short term municipal bond Z fund (NSMIX) is a possible candidate and is available at Schwab and Vanguard but not Fidelity Retail. Its performance over the last tumultuous three months puts itself between the ultrashort Vanguard short-term tax-exempt municipal bond fund and longer duration funds like the Vanguard limited term tax-exempt fund or Fidelity short/intermediate-term tax exempt fund.

Glenmede Municipal Intermediate Mutual fund (GTCMX) is a four star municipal bond fund that is only available in a very limited number of places. The company is primarily an East Coast investment and wealth management firm.

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