Morningstar's Top 10 Municipal Bond Funds By 10-Year Total Return

For tax-conscious investing within taxable brokerage accounts, municipal bond funds can answer the call for income and returns.

Morningstar today released updated ratings for many municipal bond funds, but the highest-returning funds don’t necessarily receive the best ratings.

For example, the year-to-date returns of Morningstar gold-medal-rated municipal bond funds such as the Vanguard High-Yield Tax Exempt Fund (VWAHX), 2.17%; Fidelity Tax-Free Bond Fund (FTABX), 2.29%; and T. Rowe Price Tax-Free High-Yield Fund (PRFHX), -0.51%, outperformed some of the funds on the list of the top funds by 10-year returns, but underperformed others.

There is also evidence that active management is adding to investor returns in these mutual funds. Morningstar’s High Yield Municipal Bond category has posted an average return of 4.49% year to date, well above the corresponding Bloomberg-Barclay’s 65% High-Grade, 35% High-Yield Total Return Index, which has posted a year-to-date return of 1.86%.

What follows in ascending order is a list of the top 10 municipal bond mutual funds, excluding single-state and single-municipality funds, by 10-year total return ending on Nov. 17, 2020.

10. BlackRock High Yield Municipal Fund (MAYHX) 6.32%
BlackRock’s $1.4 billion High-Yield Municipal Fund returned 6.32% over the decade ending on Nov. 17, and sports a 0.66% annual expense ratio. The fund turned in five-year returns of 5.05%, a one-year return of 2.12% and a year-to-date return of 0.96%.

9. AMG GW&K Municipal Enhanced Yield Fund (GWMEX) 6.35%
At just $324.4 million in assets, the AMG GW&K Municipal Enhanced Yield Fund is the smallest by invested assets in the top ten, but it offered investors an attractive 6.35% return over the past decade. The fund, which carries a 0.64% expense ratio, had five-year returns of 5.38%, a one-year return of 4.36%, and returned 3.33% year-to-date.

8. Invesco High Yield Municipal Fund (ACTDX) 6.39%
Invesco’s High Yield Municipal Fund offered 10-year returns of 6.39%, 5-year returns of 4.91%, a one-year return of 1.27% and a year-to-date return of 0.22%. The $9.9 billion fund has an expense ratio of 0.88%.

7. Eaton Vance High Yield Municipal Income Fund (EIHYX) 6.54%
Returning 6.54% over the 10-year period ending Nov. 17, Eaton Vance’s $1.4 billion High Yield Municipal Income Fund charges an expense ratio 0.64%. The fund has provided an impressive 4.99% return over five years, 2.73% over 12 months and 1.89% year-to-date.

6. AB High Income Municipal Portfolio (ABTYX) 6.59%
The AB High Income Municipal Portfolio experienced returns of 6.59% during the past decade. With $3.2 billion in assets, the fund charges investors a 0.6% annual expense ratio. ABTYX has offered five-year returns of 5.08%, a one-year return of 2.8% and a year-to-date return of 1.64%

5. Goldman Sachs High Yield Municipal Fund (GHYIX) 6.72%
Goldman Sachs’ $9.1 billion High Yield Municipal fund gave investors returns of 6.72% over the past decade while costing them a 0.54% annual expense ratio. Over the past five years the fund returned 6.34%, as well as 3.05% over the past 12 months and 1.7% year to date.

4. AB Municipal Income Shares (MISHX) 6.79%
The lowest-cost mutual fund in the top 10 with a 0.01% expense ratio, the AB Municipal Income Fund has $5.5 billion in assets. Year to date, it has returned 2.51%, with one-, five- and 10-year returns of 3.63%, 5.53% and 6.79%, respectively.

3. MainStay MacKay High Yield Municipal Bond Fund (MMHIX) 7.06%
The MainStay MacKay High Yield Municipal Bond Fund has $8.7 billion in assets and carries a 0.61% expense ratio. Over the past decade the fund has returned 7.06%. MMHIX has also posted a 5.6% five-year return, a 3.19% 12-month return and a 2.28% year-to-date return. MainStay is a boutique investment firm operating under the umbrella of New York Life Investments.

2. Nuveen High Yield Municipal Bond Fund (NHMRX) 7.48%
Nuveen’s High Yield Municipal Bond Fund achieved many of the superlatives of the best returning funds of the past 10 years. With $18.9 billion in assets, it's the largest fund on this list. It’s also the priciest, costing investors a 0.99% annual expense ratio. Over the short-term, it posted the worst year-to-date performance, at -1.02%, and a paltry 0.22% one-year return. But over longer periods, NHMRX has delivered with a 5.6% five-year return and a 7.48% 10-year return.

1. Invesco AMT-Free Municipal Fund (OPTAX) 7.88%
The best performing municipal bond fund over the past decade, Invesco’s AMT-Free Municipal Fund generated 10-year returns of 7.88%. It charges a moderate expense ratio of 0.86%. The fund, which has $2.5 billion in assets, returned 6.88% over five years, 6.63% over the past 12 months and, at 5.25%, has the best year-to-date return of any fund on this list.