Thornburg Investment Management has launched a low duration municipal bond fund aimed at investors looking for a tax-exempt income stream as interest rates rise.
The Thornburg Low Duration Municipal Fund will invest principally in a laddered maturity portfolio of investment-grade municipal bonds with a dollar-weighted average duration of no more than three years, the firm said in an announcement Tuesday.
The addition of the current-income fund brings Thornburg's municipal bond fund count to seven. The firm also offers limited and intermediate-term funds, a strategic municipal fund and three state-specific funds. Thornburg has $95 billion in total assets under management, $9.5 billion of which is municipal-related.
"We looked at the market and what our customers were asking for and coming into June when you first started hearing about the Federal Reserve taper, there were a lot of people who had fear about rising interest rates," Nick Venditti, associate portfolio manager at Thornburg, said in an interview. "Some of those people were looking for something even less volatile than what is offered in the limited term fund, which has one to 10-year ladder."
Josh Gonze and Christopher Ryon, managing directors at Thornburg who oversee the firm's municipal bond investing group, will manage the new fund, which became available to investors Dec. 30.
"Looking at the current rate conditions, along with expected price stability, we anticipate the fund providing investors with an increasing income stream as short-term rates rise because of its laddered structure," Ryon said in the press release.
Duration length indicates how sensitive a fixed-income investment is to a change in interest rates, in which lower duration implies less sensitivity. Thornburg's intermediate-term fund runs a ladder with maturities ranging from one to 20 years, while the strategic fund can invest at any point along the yield curve.
"It's going to appeal to investors looking for a little bit of yield with very little risk," Venditti said. "It's about half the duration of our limited fund so it's going to have significantly lower volatility."
Current-income funds are attractive to investors searching for regular income that goes beyond a money-market fund and returns higher yields than a standard savings account.
"I'm planning on building a house in the near future," Venditti said. "I'm going to put a lot of money into this fund the next six months as a holding place with that safety of principal."
