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Smaller Muni Funds That Do Their Homework

These funds offer good managers backed by strong research teams.

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In last week's Five-Star Investor we looked at smaller taxable-bond funds that Morningstar's fund analyst team likes. This week we turn to municipal-bond funds.

For the uninitiated, municipal-bond funds invest in debt issued by state or local governments or agencies. One major advantage of munis, and a source of their appeal for investors in higher tax brackets, is that income from them is not taxed at the federal level. In addition, investors who buy bonds issued by municipalities in their home states might also be able to avoid state and local taxes on the bonds' income. For a discussion of whether municipal bonds are right for your portfolio, click here

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