An Appealing High-Yield Muni Fund With an Appetite for Risk

Kenneth Oshodi: BlackRock High Yield Municipal's combination of a stout team, effective process, strong long-term performance, and inexpensive fees make it an appealing offering.

Managers Ted Jaeckel and Walter O'Connor lead the bottom-up and top-down approach for this fund, whose stable and robust team also benefits from BlackRock's sophisticated risk-management tools. Jaeckel and head of municipal research, Jim Schwartz, further strengthened the team's process by forming a separate high-yield muni strategy group, a team of analysts and portfolio managers dedicated to thoroughly studying the high-yield municipal landscape.

These resources are essential, given the fund's appetite for risk. Its 17% allocation to the occasionally volatile tobacco sector, as of Sept. 29, 2017, was double the median of their peers, and its typical overweight to long maturity bonds has resulted in poor performance during interest-rates spikes.

Despite the occasional setback, the fund's (5.13%) annualized return for the 10 years through September 2017 landed in the top quintile of its category. The team achieved these results thanks to superior sector allocation and bond selection versus the fund's benchmark, which reinforces the solid interplay among the group and this fund's Morningstar Analyst Rating of Bronze.