State Muni Funds

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
grenadaRocks
Posts: 10
Joined: Sat Mar 11, 2017 11:33 pm

State Muni Funds

Post by grenadaRocks » Mon Apr 02, 2018 4:35 pm

Why does Vanguard only have so few state specific muni funds - example NY, NJ, CA - and not for all the other states?

Are there other companies that have worthwhile state specific Muni funds?

lack_ey
Posts: 6613
Joined: Wed Nov 19, 2014 11:55 pm

Re: State Muni Funds

Post by lack_ey » Mon Apr 02, 2018 5:41 pm

Some states have no state income tax (and others have low income tax), so a state-specific fund would not make sense.

Many of the other states are smaller and have less wealthy and high-earning populations, and state-specific funds may not be able to gather enough assets to be worthwhile for the likes of a Vanguard.

That's why you see California, New York, Pennsylvania, Ohio, etc., but not Texas, Florida, or Vermont.

Some other fund companies cover states Vanguard doesn't, but generally at high enough expense ratios I don't think it's worth it.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: State Muni Funds

Post by Pajamas » Mon Apr 02, 2018 5:45 pm

They probably only create such funds when there is both sufficient demand and supply of bonds to make a fund in the first place.

Lots of states have fewer than 2,000,000 residents and then when you look at the number of people who could benefit from a muni bond fund and then at the number who would invest in them and then at the number of people who would invest in them at Vanguard in a state like Wyoming, it is probably much smaller than the number of employees Vanguard has, which is about 15,000. You could literally end up with a handful of customers. Vanguard already has information about the number of bond fund customers they have in each state and how much they each have invested.

Some states probably do not issue enough bonds to create a robust market in them, anyway.

https://simple.wikipedia.org/wiki/List_ ... population

User avatar
Artsdoctor
Posts: 3504
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: State Muni Funds

Post by Artsdoctor » Tue Apr 03, 2018 4:50 pm

There has to be demand and there has to be bonds. But you'd also WANT diversification.

The national intermediate muni fund has over 7500 bonds, just for perspective. The CA intermediate muni fund has nearly 3500 bonds.

On the other hand, the OH, MA, and NJ long-term muni funds have about 500 bonds each. I can see the appeal of having a little bit of state-specific muni fund variety in your portfolio but those portfolios in the state-specific funds are really tiny. Even the NY long-term muni fund barely has 1000 bonds.

Iliketoridemybike
Posts: 572
Joined: Wed Jun 28, 2017 11:03 am

Re: State Muni Funds

Post by Iliketoridemybike » Tue Apr 03, 2018 7:16 pm

Artsdoctor wrote:
Tue Apr 03, 2018 4:50 pm
There has to be demand and there has to be bonds. But you'd also WANT diversification.

The national intermediate muni fund has over 7500 bonds, just for perspective. The CA intermediate muni fund has nearly 3500 bonds.

On the other hand, the OH, MA, and NJ long-term muni funds have about 500 bonds each. I can see the appeal of having a little bit of state-specific muni fund variety in your portfolio but those portfolios in the state-specific funds are really tiny. Even the NY long-term muni fund barely has 1000 bonds.
I’ll take double tax free over diversification.

Tallis
Posts: 70
Joined: Tue Mar 29, 2016 7:23 pm

Re: State Muni Funds

Post by Tallis » Wed Apr 04, 2018 10:23 am

lack_ey wrote:
Mon Apr 02, 2018 5:41 pm
Some other fund companies cover states Vanguard doesn't, but generally at high enough expense ratios I don't think it's worth it.
That's my experience as a Minnesotan. Even with our relatively high income tax, I come out ahead holding a Vanguard national muni fund rather than one of the higher-expense Minnesota-specific funds.

User avatar
grabiner
Advisory Board
Posts: 22696
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: State Muni Funds

Post by grabiner » Wed Apr 04, 2018 10:09 pm

Artsdoctor wrote:
Tue Apr 03, 2018 4:50 pm
There has to be demand and there has to be bonds. But you'd also WANT diversification.

The national intermediate muni fund has over 7500 bonds, just for perspective. The CA intermediate muni fund has nearly 3500 bonds.

On the other hand, the OH, MA, and NJ long-term muni funds have about 500 bonds each. I can see the appeal of having a little bit of state-specific muni fund variety in your portfolio but those portfolios in the state-specific funds are really tiny. Even the NY long-term muni fund barely has 1000 bonds.
The number of bonds doesn't matter much for diversification; what matters is the correlation of risks. In particular, there are many bonds from the same issuer, which provide no credit diversification; for example, the CA long-term fund has 74 CA general obligation bonds, and 27 from the Los Angeles Department of Water and Power. But even considering different issuers, all of the CA bonds are from CA or cities, counties, and municipal authorities in CA (with a tiny amount from Guam); if something happens to the state of CA, this will endanger a large portion of the bonds.
Wiki David Grabiner

jrbdmb
Posts: 278
Joined: Tue Oct 06, 2015 4:27 pm

Re: State Muni Funds

Post by jrbdmb » Wed Apr 04, 2018 10:29 pm

Iliketoridemybike wrote:
Tue Apr 03, 2018 7:16 pm
Artsdoctor wrote:
Tue Apr 03, 2018 4:50 pm
There has to be demand and there has to be bonds. But you'd also WANT diversification.

The national intermediate muni fund has over 7500 bonds, just for perspective. The CA intermediate muni fund has nearly 3500 bonds.

On the other hand, the OH, MA, and NJ long-term muni funds have about 500 bonds each. I can see the appeal of having a little bit of state-specific muni fund variety in your portfolio but those portfolios in the state-specific funds are really tiny. Even the NY long-term muni fund barely has 1000 bonds.
I’ll take double tax free over diversification.
It depends on the state. Residents of Illinois and New Jersey may find diversification very valuable. I live in NJ and at least for now I wouldn't touch a NJ-only fund.

User avatar
ClevrChico
Posts: 1281
Joined: Tue Apr 03, 2012 8:24 pm

Re: State Muni Funds

Post by ClevrChico » Wed Apr 04, 2018 10:49 pm

I live in a rural state, and I don't believe a muni bond fund even exists for the state with any company.

User avatar
Artsdoctor
Posts: 3504
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: State Muni Funds

Post by Artsdoctor » Thu Apr 05, 2018 9:13 am

grabiner wrote:
Wed Apr 04, 2018 10:09 pm
Artsdoctor wrote:
Tue Apr 03, 2018 4:50 pm
There has to be demand and there has to be bonds. But you'd also WANT diversification.

The national intermediate muni fund has over 7500 bonds, just for perspective. The CA intermediate muni fund has nearly 3500 bonds.

On the other hand, the OH, MA, and NJ long-term muni funds have about 500 bonds each. I can see the appeal of having a little bit of state-specific muni fund variety in your portfolio but those portfolios in the state-specific funds are really tiny. Even the NY long-term muni fund barely has 1000 bonds.
The number of bonds doesn't matter much for diversification; what matters is the correlation of risks. In particular, there are many bonds from the same issuer, which provide no credit diversification; for example, the CA long-term fund has 74 CA general obligation bonds, and 27 from the Los Angeles Department of Water and Power. But even considering different issuers, all of the CA bonds are from CA or cities, counties, and municipal authorities in CA (with a tiny amount from Guam); if something happens to the state of CA, this will endanger a large portion of the bonds.
It is true that having a large chunk of state GO bonds would not provide a lot of diversification. I didn't count the number of such bonds in the fund but if it's only 74, then that's 2% of the fund. Likewise, the LA DWP would be less than 1%. The portfolio contains an extraordinary variety of issuers, from essential services throughout the state, water authorities throughout the state, educational facilities, transportation authorities, etc. While a catastrophe can strike any region with devastating consequences, the likelihood would be far, far greater to have an impact on much smaller states which might have state-specific funds.

There's tremendous wealth and a heartbreaking amount of poverty throughout the state. But it has the sixth largest economy in the world so I'm confident that there is a reasonable amount of buffer with investments here.

Iliketoridemybike
Posts: 572
Joined: Wed Jun 28, 2017 11:03 am

Re: State Muni Funds

Post by Iliketoridemybike » Thu Apr 05, 2018 1:42 pm

jrbdmb wrote:
Wed Apr 04, 2018 10:29 pm
Iliketoridemybike wrote:
Tue Apr 03, 2018 7:16 pm
Artsdoctor wrote:
Tue Apr 03, 2018 4:50 pm
There has to be demand and there has to be bonds. But you'd also WANT diversification.

The national intermediate muni fund has over 7500 bonds, just for perspective. The CA intermediate muni fund has nearly 3500 bonds.

On the other hand, the OH, MA, and NJ long-term muni funds have about 500 bonds each. I can see the appeal of having a little bit of state-specific muni fund variety in your portfolio but those portfolios in the state-specific funds are really tiny. Even the NY long-term muni fund barely has 1000 bonds.
I’ll take double tax free over diversification.
It depends on the state. Residents of Illinois and New Jersey may find diversification very valuable. I live in NJ and at least for now I wouldn't touch a NJ-only fund.
That I agree with. :sharebeer

Post Reply