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This Income-Oriented Muni Fund Shines When Rates Are Low

Elizabeth Foos

Beth Foos: Franklin Federal Intermediate-Term Tax-Free Income (FITZX) uses a straightforward, buy-and-hold approach that has delivered solid returns over the long run and has earned it a Morningstar Analyst Rating of Silver.

One of this fund's more appealing features is its long-tenured team. Portfolio managers John Pomeroy and James Conn have been with the fund for decades, and they're backed by a larger team of analysts with solid experience in the muni markets.

Their goal is to generate the maximum amount of tax-exempt income. To this end, they buy high-quality bonds and try to limit fund turnover to keep costs low. They tend to run more conservative than their category rivals in terms of credit quality, and they don't use leverage or derivatives in the fund.

Another positive is the fact that, unlike several of the other funds in the Franklin muni complex, this fund doesn't hold a significant allocation of Puerto Rico bonds, which has likely helped to shield it from volatility in recent months.

There is some risk here, though: The fund tends to have greater exposure to longer-maturity bonds than its typical peer. This helps it generate higher income but also exposes the fund to more volatility when interest rates are on an upswing.