2 Winning Muni Funds
Elizabeth Foos: Both MFS Municipal Income and T. Rowe Price Tax-Free Income have a lot to offer muni investors.
Both funds are included in Morningstar’s muni national long category and are run by experienced teams with sophisticated analytic tools that they use to build their portfolios. Yet, a closer look at these funds reveals some noteworthy differences.
For one, MFS Muni Income has taken on more interest-rate risk than its peer offered by T. Rowe. While neither fund will load up on derivatives, MFS Municipal Income generally has kept a longer duration in the past five years, which has mostly provided a tailwind for returns over that period.
At the same time, the MFS fund held larger stakes in lower-quality bonds and issues that may add to volatility, such as bonds issued by the state of Illinois and entities in Puerto Rico and bonds secured by tobacco revenues, which are positions largely avoided by the T. Rowe team.
Both funds have served investors well, but the more aggressive stance taken by MFS Muni Income fund has delivered stronger annualized returns over the past decade.