Should you stick to passive investing when it comes to municipal bonds? Think again

The Bloomberg Barclays Municipal Bond Index, composed of more than 50,000 issues, is large, complex, and much less efficient to follow than a stock benchmark.

Over the long term, actively managed municipal bond funds have outperformed their passive benchmarks.

Municipal bond funds versus their benchmarks — 10 years (December 31, 2009 – December 31, 2019)

Municipal bonds funds versus their benchmarks

Data as of Dec. 31, 2019.

Past performance does not guarantee future results.

Sources: Bloomberg Index Services Limited and Morningstar fund data. Average fund return is based on the actively managed funds listed in each Morningstar category and is net of fees. 10-year returns are annualized.

©2020 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

The active bars represent Morningstar Category returns. The passive bars represent category index returns. The passive index for each category is as follows: Municipal High Yield = Bloomberg Barclays 65% High Grade/35% High Yield Municipal Bond Index; Municipal National Intermediate = Bloomberg Barclays 1-15 Year Municipal Bond Index; and Municipal National Long = Bloomberg Barclays Municipal Bond Index.

What this means for investors:

While steady income may play an important role in an investor’s portfolio, the chart above illustrates the potential for increased growth through actively managed municipal bond funds.

Carefully consider the Funds’ investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds’ prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy

The views expressed represent the investment team's assessment of the market environment as of January 2020 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice.

Past performance does not guarantee future results.

Investing involves risk, including the possible loss of principal.

The Bloomberg Barclays 1-15 Year Municipal Bond Index measures the total return performance of investment grade, tax-exempt bonds with maturities from 1 to 15 years.

The Bloomberg Barclays High-Yield Municipal Bond Index is composed of US dollar-denominated, non-investment-grade, tax-exempt bonds for which the middle rating among Moody’s Investors Service, Inc., Fitch, Inc., and Standard & Poor’s is Ba1/BB+/BB+ or below.

The Bloomberg Barclays Municipal Bond Index measures the total return performance of the long-term, investment grade tax-exempt bond market.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

Fixed income investments may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.


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