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Maryland Muni Bond Funds
Old 03-16-2014, 03:21 PM   #1
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Maryland Muni Bond Funds

My AA is 70% equities and 30% Cash (CD's and Stable Value) with no bonds. These funds are all tax deferred. I feel a need to build an after tax portfolio and gain some bond exposure. I have decided that a muni bond fund would be a suitable way to meet both these needs. I am considering several funds including these.

https://www.fidelity.com/fund-screen...CETMDX%2CMDXBX


I am favoring the T Rowe Price Fund but also considering a closed end fund......Blackrock Maryland Muni Trust (BZM<-had a little trouble with this symbol) which is trading at a discount currently. I know that leverage is a significant factor in a closed end fund but do not understand how that might apply to this particular.

Your feedback is appreciated (esp wrt the leverage of the Blackrock fund)
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Old 03-16-2014, 04:03 PM   #2
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The Fidelity fund has an expense ratio of .55%, which is high in my opinion. Why not look at a Vanguard national fund? VWITX gives you national exposure at only .20% ER, and duration is only 5.2 years vs 7.42 for Fidelity.

When evaluating municipal bond funds, you want to look at the expense ratios, the average duration, and whether they are all tied to one state or national in exposure. Those are the main variables that will determine performance and interest rate risk.
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Old 03-16-2014, 05:38 PM   #3
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Too many troubles at TRP for me to consider them. Equivalent funds from Fidelity may have a slightly higher exp ratio but IMO it's worth the difference. Vanguard seems to maintain quality even at a lower cost, but may not have as many state muni fund offerings.
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Old 03-16-2014, 05:41 PM   #4
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Taking a look at the M* report on the fund these things stand out about BZM.
- Low average credit BBB-
- High duration leverage adjusted duration of 9.62.
- Mediocre past performance
- Small market cap 30 million

The 6% discount is attractive but there is no guarantee it will shrink in the future.

I think Ready suggestion for looking at national muni fund rather than a state specific makes sense. MD top tax rate of 5.75% is high but maybe not enough to overcome the higher expenses and risk of single state concentration.
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Old 03-16-2014, 05:58 PM   #5
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MD counties "add on" to the state tax rate. You can easily pay 8.5% in the more expensive counties.

Vanguard doesn't offer a MD muni fund.

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MD top tax rate of 5.75% is high but maybe not enough to overcome the higher expenses and risk of single state concentration.
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Old 03-16-2014, 10:08 PM   #6
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Maryland taxes approach 9% including the county taxes. I own shares in BZM for several years and NMY as well. Dividends are completely triple tax free for Maryland residents. No federal, state, or county tax. NMY is much larger than BZM. Both held some bonds from Puerto Rico and got hit from that. I think if you are in a high federal bracket these funds are excellent. Monthly payout is nice also. JMHO
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Old 03-17-2014, 06:03 PM   #7
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Quote:
Originally Posted by GrayHare View Post
Too many troubles at TRP for me to consider them. Equivalent funds from Fidelity may have a slightly higher exp ratio but IMO it's worth the difference. Vanguard seems to maintain quality even at a lower cost, but may not have as many state muni fund offerings.
Care to elaborate on troubles at TRP?


Thanks to all for the feedback.
  • I did notice some exposure to Puerto Rico bonds in some of the funds so that's something I will dig into.
  • The local tax exemption IS something that is important to me....otherwise I would go with Vanguard.
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Old 03-18-2014, 06:17 AM   #8
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I use Trowe MDXBX. It has a good long term track record. Expense ratio is higher than I would like, but even net of that, its a great after tax return and you do not get hosed on the spread trying to buy individual munis.
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