Top 5 Highest Yielding Municipal Bond Mutual Funds (May 2011)

Interest income exempt from federal income tax is among the many distinct advantages that municipal bonds offer to investors. They also show very little correlation with returns from equity investments. Thus, they offer relatively high yields at lower levels of risk and are considered second only to government securities in terms of safety of capital invested. By holding a well diversified portfolio of such securities, mutual funds significantly lower the associated default risk.

Below we will share with you the 5 highest yielding Zacks #1 ranked municipal bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.

Mutual Fund SEC Yield
JP Morgan Tax Aware Hign Income A 4.21%
U.S. Global Investors Tax-Free 3.47%
Consulting Group Municipal Bond 3.2%
HighMark National Intermediate Tax Free Bond 3.0%
Commerce Kansas Tax Free Intermediate Bond 2.9%

JPMorgan Tax Aware High Income A (JTIAX) seeks a significantly high level of post-tax income. The fund invests in a wide range of fixed-income securities, focusing on purchasing municipal bonds. Not more than 35% of its assets are invested in junk bonds. The municipal bond mutual fund has a three year annualized return of 5.59%.

The municipal bond mutual fund has a minimum initial investment of $1,000 and an expense ratio of 0.65% compared to a category average of 0.88%.

U.S. Global Investors Tax-Free (USUTX) invests a large portion of its assets in municipal securities with investment-grade ratings. The interest earned from these instruments is exempt form federal income tax, including the federal alternative minimum tax. The municipal bond mutual fund has a ten year annualized return of 3.84%.

The Fund Manager is Frank Holmes and he has managed this municipal bond mutual fund since 1999.

Consulting Group Municipal Bond (TMUUX) seeks significantly high interest income which is exempt from federal income taxes along preservation of capital. The fund primarily purchases municipal obligations with a wide range of maturity periods. The municipal bond mutual fund returned 2.24% in the last one year period.

As of March 2011, this municipal bond mutual fund held 62 issues, with 3.63% of its total assets invested in New Jersey St Tpk Auth 5.25%.

HighMark National Intermediate Tax Free Bond (HMNTX) invests at least 65% of its assets in municipal securities. The bulk of the funds assets are utilized to hold tax exempt fixed income securities. The average maturity period of its portfolio varies from three to ten years. The municipal bond mutual fund has a five year annualized return of 4.14%.

The municipal bond mutual fund has an expense ratio of 0.51% compared to a category average of 0.88%.

Commerce Kansas Tax Free Intermediate Bond (KTXIX) seeks current income not subject to federal and Kansas income taxes. The majority of the fund’s assets are utilized to purchase Kansas municipal bonds. The municipal bond mutual fund is non-diversified and returned 2.01% over the last one year period.

The Fund Manager is Brian P. Musielak and he has managed this municipal bond mutual fund since 2000.

To view the Zacks Rank and past performance of all municipal bond funds, then click here.

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