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Fidelity

Mutual Fund

Fidelity Municipal Bond Fund Analysis

Here are some Fidelity Municipal Bond Funds that we have researched for our portfolio. One major issue with Fidelity municipal bond mutual funds is that they can perform transactions that leverage returns. Leverage can magnify gains, but also intensified losses and volatility. During the credit crisis, the Fidelity funds family owned did not go crazy like some other municipal bond mutual funds. Also see Vanguard Municipal Bond Mutual Funds. Research done 1/12/2012

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

Fidelity California Tax-free Bond funds

Fidelity California Short-Intermediate Term Tax Free Bond Fund (FCSTX)

Average maturity – years. Average duration 3.05 years. Average credit quality A. Expense ratio 0.34%. Morningstar rating 3 stars, Gold.

2011 return: 4.74%

Note: Reasonable duration and expense ratio. Vanguard doesn’t have a California municipal bond mutual fund with this short duration.

Fidelity California Municipal Income Fund (FCTFX)

Average maturity — years. Average duration 7.63 years. Average credit quality A. Expense ratio 0.46%. Morningstar rating 4 stars, Gold.

2011 return: 11.24%
Note: Too long of a duration and lower credit quality and we want.

Comparing Fidelity California tax-free municipal bond mutual funds. We can see the effect of longer duration net asset value fluctuations. The longer term fund does yield more though.

Fidelity National Tax-free Bond funds

Fidelity Short-Intermediate Muni Income Bond Fund (FSTFX)

Average maturity — years. Average duration 2.88 years. Average credit quality A. Expense ratio 0.48%. Morningstar rating 3 stars, Gold.

2011 return: 4.34%

Note: Reasonable duration but slightly high expense ratio. Vanguard doesn’t have a California municipal bond mutual fund with this short duration.

Fidelity Intermediate Municipal Income Fund (FLTMX)

Average maturity — years. Average duration 5.31 years. Average credit quality A. Expense ratio 0.39%. Morningstar rating 4 stars, Gold.

2011 return: 7.97%
Note: Too long of a duration and lower credit quality and we want.

Fidelity Municipal Income Fund (FHIGX)

Average maturity — years. Average duration 8.05 years. Average credit quality A. Expense ratio 0.46%. Morningstar rating 4 stars, Gold.

2011 return: 10.65%
Note: Too long of a duration and lower credit quality and we want.

Fidelity Municipal Income Fund (FTABX)

Average maturity — years. Average duration 8.08 years. Average credit quality A. Expense ratio 0.24%. Morningstar rating 5 stars, Gold.

2011 return: 10.91%

Note: Too long of a duration and lower credit quality and we want.

Comparing shorter term Fidelity national tax-free municipal bond mutual funds. We can see the effect of longer duration net asset value fluctuations. The longer term fund does yield more though. Fidelity Municipal Bond Funds remain some of the better muni bond funds investors should consider due to fairly low cost and decent performance.

Education Mutual Fund

Vanguard Municipal Bond Mutual Funds

Here are some Municipal Bond Mutual Funds that we have researched for our portfolio. Also see Fidelity California Municipal Bond Mutual Funds. Research done 1/12/2012.

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

California specific tax exempt funds

Vanguard California Intermediate Term Tax Free Fund (VCAIX)

Average maturity 5.7 years. Average duration 5.55 years. Average credit quality A. Expense ratio 0.20%, 0.12% Admiral shares. Morningstar rating 4 stars, Silver.

2011 return: 10.16%

Note: Very low expense ratio, but longer duration than Fidelity’s fund and lower average credit quality.

Vanguard California Long Term Tax Exempt Fund (VCITX)

Average maturity 7.6 years. Average duration: 6.74 Years. Average Credit quality: A. Expense Ratio: 0.20%, 0.12% Admiral shares. Morningstar Rating: 4 Star, Silver.

2011 return: 11.49%

Note: Too long the duration for us.

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.

National tax exempt funds

Vanguard High-Yield Tax-Exempt Fund (VWAHX)

Average maturity 8.4 years. Average duration 6.73 years. Average credit quality BBB. Expense ratio 0.20%, 0.12% Admiral shares. Morningstar rating 4 stars, Silver.

2011 return: 10.98%

Note: Too long the duration for us and low average credit quality. This high-yield tax exempt fund can invest up to a fifth of its assets in below investment grade bonds. The other 80% must be in investment grade municipal bonds.

Vanguard Intermediate Term Tax-Exempt Fund (VWIUX)

Average maturity 5.7 years. Average duration 5.45 years. Average credit quality A. Expense ratio 0.20%, 0.12% Admiral shares. Morningstar rating 4 stars, Silver.

2011 return: 9.71%

Note: Too long the duration for us.

Vanguard Limited Term Tax-Exempt Fund (VMLTX)

Average maturity 2.8 years – Average Duration: 2.45 Years – Average Credit quality: AA. Exp Ratio: 0.20%, 0.12% Admiral shares. Morningstar Rating: 3 Star, Silver

Note: very good credit quality and duration.

Vanguard Short Term Tax-Exempt Fund (VWSTX, VWSUX)

Average maturity 1.2 years – Average Duration: 1.12 Years – Average Credit quality: AA. Exp Ratio: 0.20%, 0.12% Admiral shares. Morningstar Rating: 2 Star, Silver

Note: Very Short duration and high credit quality. Almost an enhanced  money market type fund.

Comparing Fidelity Intermediate Term and Vanguard Short Term municipal bond mutual funds. We can see the effect of longer duration net asset value fluctuations. The Fidelity fund does yield more though.

Municipal Bond Mutual Fund

Fidelity Municipal Bond Mutual Fund — FSTFX — Morningstar Rating Reduction

fidelity tax-free municipal bond fund

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.

Education Mutual Fund

Fidelity Defined maturity Municipal bond mutual funds

fidelity tax-free municipal bond mutual fund

In June 2011, Fidelity launched several defined maturity municipal bond mutual funds. The funds will be liquidated on June 30 of each specific year and any remaining value will be returned to shareholders of record. These funds attempt to achieve what individual investors typically do with bond ladders, while including the versatility of a mutual fund. Holding one of these funds until maturity won’t exactly guarantee you get back the same net asset value that you paid in that. Not all bonds will mature exactly on the June 30 liquidation date, resulting in slightly lower yields as they close in on maturity. These funds charge an expense ratio of 0.40%, which is pretty reasonable.

These Fidelity municipal bond mutual funds will target 2015, 2017, 2019, and 2021 as maturity dates: Fidelity Municipal Income 2015 (FMLCX), Fidelity Municipal Income 2017 (FMIFX), Fidelity Municipal Income 2019 (FMCFX), and Fidelity Municipal Income 2021 (FOCFX).

These are brand-new funds, so I would give them time to iron out the kinks and establish a track record especially during any downdrafts. Is

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.