A Muni Fund With Some Bite

Alaina Bompiedi: Bronze-rated MainStay Tax Free Bond is run by a veteran team that guides this fund's positioning with a mix of thematic views and steadfast contrarianism. Co-chief investment officers John Loffredo and Bob DiMella of MacKay Shields subadvise this fund for New York Life's MainStay Investments. They work closely with four additional portfolio managers, most of whom have been colleagues for nearly two decades. The team's annual macro outlook sets the tone for the fund's security, credit, and maturity positioning while bottoms-up fundamental research ultimately decides what goes into the portfolio.

Somewhat uniquely, this bargain-hunting team can be more active on the trading desk than other muni shops, and will occasionally use the reverse inquiry market to obtain the bonds they want.

With that, the team's style has led it to court some risks that won't make the fund an appropriate substitute for a conservative muni fund. Its nearly 8% stake in insured Puerto Rico bonds can backfire if the bond insurers become unable to meet payments, and the fund's nearly 20% position in 10-year Treasury futures can hurt if Treasury and muni yields pull apart. While we think the team is fairly prudent in how it manages those risks, and has delivered excellent returns so far, the fund's downside risk can be hard to measure. Overall, the fund is worth a look for investors who want a muni fund with some bite.