At The Top Of The Muni Game

How Thomas Fetter got Eaton Vance Municipal Bond Fund in winning form

Thomas Fetter, an avid golfer, knows the importance of having your head in the game. At a club tournament near Providence, R.I., last year, the 17-handicapper finished round one in the top spot. But he lost his focus the next day, shooting a 97 and ceding the lead. So he read Golf Is Not a Game of Perfect by Bob Rotella to brush up on golf's mental aspects. "The mechanics are important, but golf's also a mind game," he says.

So is investing. And few muni bond managers play as well as Fetter, who runs the $250 million Eaton Vance Municipal Bond Fund (ETMBX ). The Ohio native started as a muni bond salesman four decades ago and joined Eaton Vance (EV ) in 1986 to run the fund. His fund has posted five-year average annual returns of 8.2%, outpacing peers by nearly 1.5 percentage points a year.

Fetter typically hunts for out-of-favor debt securities. For example, he picked up $15 million worth of California bonds a couple of years ago after the state's budget crisis adversely affected the prices, driving up the yields on the investment grade debt. Now that the bonds have recovered, he has pared back his stake.

While the bulk of his portfolio is investment grade, he also devotes a good portion to lower-quality and unrated bonds. Right now, the fund has 27% in such securities, pushing up its yield to 5.6%, vs. 3.8% for other long-term muni funds. Fetter and his team of nine analysts keep the risk in check, researching each issue thoroughly.

The fund's relatively small size lets Fetter be nimble. While $50 million to $150 million issues may be largely overlooked by megabillion-dollar funds, Fetter can easily buy big stakes in smaller bonds. "I have access to more opportunities," he says. Such an advantage helps keep Fetter's mind in the game.

By Adrienne Carter

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