New York municipal bond mutual funds provide investors with professionally managed exposure to the New York municipal bond market. New York municipal bond funds primarily invest in bonds issued by New York state, local governments, regional governments, and special purpose districts. In turn, these funds are used to support public projects such as schools, highways, and hospitals. New York municipal bond mutual funds offer investors long-term, steady capital appreciation with a low degree of volatility.
The risks inherent to these funds include credit risk, income risk, liquidity risk, non-diversification risk, state-specific risk, and income risk. Since many New York municipal bond mutual funds invest in medium- and long-term bonds, these funds tend to have higher effective durations. In turn, they carry more interest rate risk and shorter-term bond funds. These funds may be enticing for investors in high tax brackets residing in New York who are willing to assume these risks: generally, interest earned on New York’s triple-exempt municipal bonds are exempt from local, state, and federal income taxes. Let’s explore the top four New York City municipal bonds,
Key Takeaways
- New York City bond funds primarily invest in municipal districts and are used to build public projects such as highways, hospitals, and parks.
- These municipal bonds provide long-term, steady capital appreciation with a low degree of volatility.
- Generally, interest income earned on these bonds are also tax-exempt on local, state, and federal levels.
Vanguard New York Long-Term Tax-Exempt Fund Investor Shares (VNYTX)
The Vanguard New York Long-Term Tax-Exempt Fund Investor Shares was issued on April 7, 1986, by Vanguard. The fund is advised by Vanguard Fixed Income and charges an expense ratio of 0.17%. As of June 30, 2021, the fund has a portfolio of 1403 investment-grade New York municipal bonds with total net assets of $4.5 billion. Since its inception, the fund has achieved an average annualized return of 5.1%.
This fund normally invests at least 80% of its total net assets in debt securities whose incomes are exempt from both federal and New York state taxes. The fund does not limit the maturities of these securities and expects its dollar-weighted average maturity to be between 10 and 25 years. The fund has a yield to maturity of 3.3%; an average coupon of 4.1%; an average duration of 6.7 years; and a 30-day SEC yield of 3.23%.
The fund is best suited for fixed-income investors residing in New York with a long-term investment horizon seeking specialized exposure to the New York municipal bond market. This mutual fund allows investors to receive federal and New York state tax-exempt income while maintaining a steady, but slow, level of capital appreciation with a low level of volatility.
Franklin New York Tax-Free Income Fund (FNYQX)
Issued on Sept. 13, 1982, by Franklin Templeton Investments, the Franklin New York Tax-Free Income Fund has achieved an average annual return of 0.8% over the past 10 years, as of quarter end June 30, 2022. The fund has an expense ratio of 0.82%. As of July 31, 2022 it has total net assets of approximately $3.04 billion and holds 426 bonds in its portfolio, which is managed by Franklin Advisors, Inc.
Under normal market conditions, the Franklin New York Tax-Free Income Fund invests at least 80% of its total net assets in debt securities that are exempt from federal income taxes, the federal alternative minimum tax and New York state taxes. Although the fund seeks to invest a substantial amount of its total net assets in tax-free securities, it may invest in debt securities subject to the federal alternative minimum tax. Additionally, it may invest up to 35% of its assets in municipal securities of issuers domiciled in U.S. territories.
By sector, the fund allocates 22.12% of its portfolio to tax-support debt, followed closely by transportation, utilities, and education. The fund has an average duration of 7.54 years; a distribution rate of 2.72%; and a 30-day standardized SEC yield of 2.64%. Based on trailing three-year data, the fund has a beta, against its benchmark index, the Bloomberg New York Municipal Bond Index, of 0.92, a standard deviation of 6.37, and a Sharpe ratio of -0.2.
In terms of modern portfolio theory (MPT), the Franklin New York Tax-Free Income Fund is best suited for fixed-income investors located in New York with a short- to medium-term investment horizon seeking to gain exposure to the New York bond market while generating tax-free income with a moderate degree of interest rate risk and credit risk. Since it provides specialized exposure to New York municipal bonds, the fund should be purchased as a satellite holding to generate tax-free income in a well-diversified portfolio.
Invesco Rochester New York Municipals Fund (RMUNX)
The Rochester Fund Municipals Class A was issued on May 15, 1986, by Oppenheimer Funds, which was acquired by Invesco Ltd. in 2018. It is now called the Invesco Rochester New York Municipals Fund. As of July 31, 2022, the fund charges an expense ratio of 0.85%.
The Invesco Rochester New York Municipals Fund normally invests at least 80% of its total net assets in securities that are exempt from federal taxes and New York state income taxes. The fund invests primarily in investment-grade New York municipal bonds. However, the fund may also invest in debt securities of issuers outside of New York, such as U.S. territories. In 2021, the fund had a total calendar year return of 6.91%.
The Rochester Fund Municipals Class A has an effective duration of 11.2 years, which indicates it carries a high degree of interest rate risk. This high degree of interest rate risk is compensated for with the fund’s high potential yield. The fund offered a 30-day standardized SEC yield of 3.75% as of August 2, 2022.
Based on trailing three-year data, when measured against its benchmark index, the Bloomberg Municipal Index, this fund has a beta of 1.37 and a Sharpe ratio of 0.07. In terms of MPT, the fund is best suited for highly risk-tolerant, long-term, fixed-income investors who reside in New York, are willing to assume a moderate to high degree of credit and interest rate risk, and seek to generate tax-free income.
Fidelity New York Municipal Income Fund (FTFMX)
Launched on July 10, 1984, by Fidelity Investments, the Fidelity New York Municipal Income Fund seeks to provide investors with a high level of income that is exempt from federal and New York state taxes. To achieve its investment objective, the fund normally invests at least 80% of its total net assets in investment-grade, tax-free municipal securities of issuers across many different sectors and maturities. The fund is advised by FMR, LLC. and charges a low net expense ratio of 0.46%.
As of June 30, 2022, the Fidelity New York Municipal Income Fund has a duration of 7.48 years, a 30-day SEC yield of 3.07%, and a tax-equivalent yield of 6.79%. Based on trailing 10-year data, the fund has generated an average annualized return of 2.03%. The fund’s low-cost exposure to the New York municipal bonds market is best suited for long-term, fixed-income investors living in New York who seek steady capital appreciation and tax-free income.