Municipal bond mutual fund exposure to the city of Detroit is not as heavy as initially projected, new analysis by an investment research firm shows.

Morningstar, Inc. revised its methodology for constructing the top-10 rankings for open- and closed-end mutual funds with exposure to the city.

The new approach more accurately delineates Detroit as the obligor of the debt than the previous set of figures that the research firm provided shortly after the bankruptcy filing, said Jeff Westergaard, director of municipal analytics, investment research at Morningstar. The firm drew its previous numbers from bonds with the word "Detroit" in the title, and consequently included investments such as debt of a Detroit-named school lying outside of the city's boundaries.

"The first set of data included some issues that may have had the city related, but after doing further analysis, they were not the obligated party," he said.

In the new figures Morningstar provided, the percentages for open-end funds tracked lower for fund exposure to debt from the city of Detroit, and the order of the top-10 shifted. Oppenheimer Rochester Michigan Muni Fund still ranked first, but its percentage of Detroit exposure fell to 14.3% from 20.1% in the earlier ranking.

Among closed-end funds, the percentages of exposure to the city of Detroit fell, and the rankings of the funds shifted around far more. For example, Pimco Municipal Income III rose to the top spot from second place with 12.7% exposure, switching positions with BlackRock, whose MuniYield MI Quality II weighed in with 7% exposure under the new methodology.

These new numbers carry a caveat, though. They are based upon the most recent figures available supplied by the fund managers themselves — some dating back to the first quarter.

"The actual holdings may have changed in the ensuing four-to-six-month period," Westergaard said. "But for the data we have available, these are the holdings that are directly attributable to issues where [the city of] Detroit is the obligor."

In addition, the new figures also do not distinguish between general obligation or revenue bond debt, Westergaard added. Nor do they separate out bonds that are insured, or GOs of the limited or unlimited variety.

Morningstar expects to produce data on municipal bond mutual funds that will be broken down in more detail as early as Friday.

Regardless of the degree of exposure, muni bond fund managers of portfolios containing exposure to the city of Detroit — most of which consisted of revenue bonds — said investors had not expressed interest in pulling their money from the funds.

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