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In Hot Muni Sector, These Funds Get High Marks

But beware of chasing performance in the current low-yield environment.

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Quick quiz: Among the U.S. stock, international-stock, taxable-bond, and municipal-bond fund categories, which one gained 13.1%--more than double the others--in the 12-month period ended Jan. 31? If you guessed muni-bond funds, you're right, and if you didn't, you might be surprised to hear just how strong the category has performed of late.

Munis' strong performance during the past year helped the category reverse a trend of fund outflows. In the first three quarters of 2011 investors pulled $22 billion from muni funds only to put nearly $10 billion back into them in the fourth quarter. The trend has continued in 2012, with a net inflow of $6.6 billion in January alone.

Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.