Market fallout hits funds. By By Dakin Campbell - October 2, 2007
As risk worries have roiled the tax-exempt bond market in recent weeks, muni bond mutual funds have seen their portfolios lose value and portfolio managers have come under criticism from investors and analysts alike.
In the latest commentary, JPMorgan issued an August report downgrading its rating on the stock of Eaton Vance Corp. from overweight to underweight—and then issued a second report Friday after a conversation with Eaton Vance senior vice president Tom Metzold.
JPMorgan's report said Eaton Vance's municipal bond performance was "decimated."
"I'm not ashamed of anything that has happened here," Metzold says. "We will trade short-term volatility for long-term performance."
Eaton Vance is the publicly traded company that runs a municipal bond fund family with at least $16.7 billion under management, as of Dec. 31, 2006.
The report, written by Kenneth Worthington, cited poor performance of Eaton Vance's municipal funds over the last week, attributing it to holdings in tobacco bonds and leveraged exposure to tender-option bond programs.
However, Metzold, the fund manager for the Eaton Vance National Municipal Fund, challenged the original JPMorgan report, saying that tender-option bond programs account for 10% to 15% of his fund and are only leveraged two to three times. Metzold also said he has less than 5% exposure to tobacco bonds.
"Clearly the muni bond mutual fund world has taken some knocks lately," says Lawrence Jones, fixed income fund analyst at Morningstar Inc. "The upshot has been a lot of volatility and some real hits to returns."
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