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 funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all municipal bond funds, then click here.
| Mutual Fund | SEC Yield |
| Oppenheimer AMT-Free Municpals A | 6.68% |
| Nuveen High Yield Municipal Bond A | 6.63% |
| Pioneer High Income Municipal A | 6.58% |
| Lord Abbett High Yield Municipal Bond A | 6.56% |
| Invesco Van Kampen High Yield Municipal A | 5.80% |
Oppenheimer AMT-Free Municipals A (OPTAX) seeks high current income free from federal income taxes. The fund primarily invests in municipal securities, exempt from federal individual income tax. At least 25% of its assets are used to purchase securities below investment grade and those in default. The fund has a ten year annualized return of 2.12%.
The municipal bond fund has an expense ratio of 1.68% compared to a category average of 1.12%.
Nuveen High Yield Municipal Bond A (NHMAX) invests the majority of its assets in municipal bonds. At least 65% of its assets are invested in bonds rated investment grade or lower. The municipal bond fund returned 25.78% over the last one year period and has a ten year annualized return of 4.18%.
As of June 2010, this municipal bond fund held 1362 issues, with 1.34% of its total assets invested in Tennessee Engy Acquisition C Jr R 5.625%.
Pioneer High Income Municipal A (PIMAX) seeks to maximize total return. The majority of its assets are invested in municipal debt securities. The interest income earned form these securities are exempt from regular federal income tax. The municipal bond fund returned 25.44% in the last one year period.
Timothy Pynchon is the fund manager and has managed this municipal bond fund since 2006.
Lord Abbett High Yield Municipal Bond A (HYMAX) invests the majority of its municipal bonds, interest earned from which are exempt from federal income taxes. At least 50% of its assets are used to purchase bonds rated investment grade and those with similar characteristics. The municipal bond fund returned 19.39% in the last one year period.
The municipal bond fund has an expense ratio of 0.84% compared to a category average of 1.12%.
Invesco Van Kampen High Yield Municipal A (ACTHX) seeks substantially high interest income, exempt from federal income tax. Medium and low grade municipal securities constitute the fund’s major investments. Securities are selected only if the associated risk is reasonable with respect to the objectives of the fund. The municipal bond fund returned 19.97% over the last one year period and has a five year annualized return of 2.29%.
The Fund Manager is James Phillips and he has managed this municipal bond fund since 2002.
To view the Zacks Rank and past performance of all municipal bond funds, then click here.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at www.zacks.com/funds/mutualfund/
