Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Christine Benz and Elizabeth Foos | 02-19-2015 04:00 PM

Will Muni Funds Continue Their Run?

After a strong 2014, we're keeping an eye on interest rates and issuance, which could both creep higher and sting in 2015. Plus, two muni-fund picks worth a look today.

Note: This video is part of Morningstar's February 2015 Tax Relief Week special report.

Christine Benz: Hi, I am Christine Benz for Municipal bonds enjoyed tremendous performance in 2014, but can they continue their run? Joining me to discuss that topic is Beth Foos. She is a senior analyst with Morningstar. Beth, thank you so much for being here.

Beth Foos: Thanks for having me.

Benz: Muni bonds had really great performance in 2014. There was some doomsaying heading into the year. What were the drivers, in the end, behind relatively strong returns from munis last year?

Foos: You're right. Despite expectations, muni funds did have a really strong 2014, both in terms of [fund flows] and in terms of returns. I think that was due to several different factors. Interest rates remained relatively low as well as municipal default rates. And overall, credit quality in the muni sector was improving, although slowly; but it was improving, making those bonds relatively attractive. At the same time, new issuance for bonds was low. It was down, so it kept the supply of muni bonds low at the same time that demand was building.

Benz: Looking forward, do you see catalysts for very strong performance from munis over, say, the next few years or are valuations such that munis may not be as attractive in the future as they have been in the recent past?

Foos: I think they did enjoy a very strong 2014, and we do see some of those trends continuing into 2015. Even in the early part [of the year], we've already seen some of those similar trends for funds; but with that, we're going to be keeping an eye on, again, the muni-bond-issuance levels as well as those long-term interest rates because we do expect that they might increase in 2015 at some point and, therefore, interest-rate-sensitive funds might get stung a little bit.

Read Full Transcript
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article