More than 80 percent of the fund is in below-investment grade muni bonds, but these are tax-exempt revenue bonds issued by public companies and secured, in most cases, by assets such as airport gates, terminals, and maintenance facilities. Stand-alone, private-pay, continuing-care retirement community bonds that aren't tied to Medicaid or Medicare reimbursement account for 30 percent of the Fund
Top contributors to 2010 returns:
Returns largely resulted from deeply discounted purchases made in early 2009, says portfolio manager Timothy Pynchon: AMR's (AMR
) Chicago O'Hare ARPT Special Facility Revenue 5.50 percent bond maturing Dec. 1, 2030, and Ohio ST Solid Waste Disposal Revenue 5.65 percent bond maturing Mar. 1, 2033
Portfolio Changes for 2011:
With an average coupon of 7.19 percent (a taxable-equivalent yield of over 11 percent) and average price of 80¢ on the dollar, the fund could earn a return of around 15 percent in 2011, Pynchon says. Since the muni sell-off, he's been a "selective seller" to fund roughly $50 million in redemptions. Once money comes back, he plans to resume buying deeply discounted revenue bonds for airlines, life-care facilities, and other high-quality companies. Solid waste includes gypsum, a mined substance found in sheetrock.