"We straddle both worlds," said Doug McGinley, who runs the Fidelity Conservative Income Municipal Bond Fund. "We provide more yield than a money market fund, but we are a bond fund that's safer than most bond funds."
Launched in October amid a credit contagion in the municipal bond market, the $90 million Fidelity fund is up 0.19 percent this year, second-to-last among municipal bond funds tracked by Lipper. But that's OK with investors who want little risk and were only getting a 0.01 percent return from a typical money market fund. His fund has a short duration, which means it is less sensitive to rate moves. Longer duration funds currently are performing better, but any sudden rise in interest rates will hurt them.
"There's still enough people concerned about what can happen when interest rates rise," McGinley said.
(See the related Financial Advisor story, "Muni Bonds Pose Questions For Advisors.")