The Motley Fool Discussion Boards
Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: Municipal bonds: A train wreck waiting to ha||Date: 12/6/2012 9:11 PM|
|Author: yodaorange||Number: 410703 of 502961|
This post contains answers to Jgc123 and Crackdclaw.
Jgc123 asked: How do you research muni funds? My Dad has a chunk of PRVAX which provides tax free income at about 3.6% and I can't figure out how to research the relative risks of the individual holdings.
Jgc, I do not know of an easy way to answer this question. I went and downloaded the latest holdings in the fund. Unfortunately, they do NOT list the “CUSIP” for each bond. You have to find that yourself. I did that for several of the larger holdings and found that the bonds are callable early. For example one large holding is:
METROPOLITAN WASH D C ARPTS AUTH ARPT SYS REV AIRPORT SYS REV BDS
Callable at 10/1/20 @ 100
Currently Valued at 113.9
I would not attempt to judge whether this bond will be called in 2020 or not. If it is called, the fund will obviously lose the extra 19 years of a 5% yielding bond.
I do not know if Morningstar does this kind of analysis or not when they review a bond fund. I thought they mostly went off of past performance. Let me hypothesize two different funds
a) Muni fund A currently yields 4%, has a duration of 7 years and contains only bonds that are NOT callable. Credit quality = XYZ
b) Muni fund B currently yields 4%, has a duration of 7 years and contains only that ARE callable