Muni Bond fund with baffling duration/yield

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Tyr0ne
Posts: 64
Joined: Thu May 10, 2012 1:35 pm

Muni Bond fund with baffling duration/yield

Post by Tyr0ne »

Trying to get a good friend into a Boglehead-style portfolio, and doing some research on his current holdings-

The fund in question: Thornburg CA Limited-Term Muni A (LTCAX)

Ignoring the fact that its 94 bps/year, the SEC yield is a still just a measly .64%. If you look at the portfolio holdings, however, it says that 76% of its bond holdings are in the 4-6% coupon range. Granted, cash is 20% of the fund, but that's clearly not enough to pull the yield down to .64%

Any ideas on whats going on? I've never seen an instance where Morningstar is miles off. If all the info is correct however, this fund is as bad as it gets.
There are times when, at least for now, one must be content to love the questions themselves - Neil deGrasse Tyson
Greatness
Posts: 226
Joined: Mon Feb 11, 2013 6:07 pm

Re: Muni Bond fund with baffling duration/yield

Post by Greatness »

I see a yield of around 1.7% according to Yahoo. More importantly, why would you be in a loaded fund?

http://finance.yahoo.com/q/pr?s=LTCAX+Profile
User avatar
ogd
Posts: 4876
Joined: Thu Jun 14, 2012 11:43 pm

Re: Muni Bond fund with baffling duration/yield

Post by ogd »

Tyr0ne: coupon and yield can be very different. Most likely, those are older bonds close to maturity.

For example, today you can buy an old Treasury maturing in Feb 2015 with a coupon of 11.25%. The catch? You have to pay almost $110 per $100, resulting in a yield of 0.14% on your money for the remainder of the term. Unsurprisingly, this is about the same as you'd get from a fresh 1 year Treasury.

The fund is a loser because of the very high fees (more than half of what it's making), not because of the discrepancy.
User avatar
Topic Author
Tyr0ne
Posts: 64
Joined: Thu May 10, 2012 1:35 pm

Re: Muni Bond fund with baffling duration/yield

Post by Tyr0ne »

ogd wrote:Tyr0ne: coupon and yield can be very different. Most likely, those are older bonds close to maturity.
I never thought about time to maturity. This makes sense. Although, M* states it has an average maturity of 4.26 and an average duration of 3.37. The duration doesn't quite match up with the yield, at least intuitively.
Greatness wrote:I see a yield of around 1.7% according to Yahoo. More importantly, why would you be in a loaded fund?
http://finance.yahoo.com/q/pr?s=LTCAX+Profile
According to M*, 1.7% is the trailing twelve month yield, and the 30-day SEC yield is .64%.
There are times when, at least for now, one must be content to love the questions themselves - Neil deGrasse Tyson
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Muni Bond fund with baffling duration/yield

Post by abuss368 »

Replace that fund with the low cost and very diversified Vanguard Intermediate Term Tax Exempt Bond Fund.

Stay the course!
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Muni Bond fund with baffling duration/yield

Post by grabiner »

Tyr0ne wrote:
ogd wrote:Tyr0ne: coupon and yield can be very different. Most likely, those are older bonds close to maturity.
I never thought about time to maturity. This makes sense. Although, M* states it has an average maturity of 4.26 and an average duration of 3.37. The duration doesn't quite match up with the yield, at least intuitively.
Vanguard's most comparable fund, Limited-Term Tax-Exempt, has a duration of 2.4 years and a yield of 0.88% before expenses. The Thornburg fund has a yield of 1.6% before expenses, which makes sense since it has a longer duration and slightly riskier bonds (more BBBs)
Wiki David Grabiner
Post Reply