American Funds Tax-Exempt Bond Fund of America Overview
Summary: This fund takes significant additional risks without providing the consistent outperformance that we look for in a 4 or 5 star actively managed fund.
Commentary: If you look at the performance of the American Funds Tax Exempt Bond Fund over the last 3 years in isolation, it has crushed the competition. By extending the duration of the bonds the fund holds, it increases the fund’s sensitivity to interest rates. By investing in lower rated bonds than other funds in its category, it increases the fund’s yield and credit risk. In the last three years this has worked out very well. In 2008 however, it did not work so well. The fund had a much larger drawdown than average, to the point where you would just now be catching up to the competition if you had invested in this fund before the drawdown.
Short-Term Performance: Excellent The American Funds Tax Exempt Bond Fund has outperformed its benchmark over the last 12 months and 3 years. Performance is particularly strong in the last year, with an annualized return of 10.88%. That is 2.08% higher than its benchmark (The Barclays Municipal Bond Index).
Long-Term Performance: Average The Fund has slightly underperformed its benchmark over the last 5 years and 10 years.
Returns Relative to Risk: Below Average The fund has an average credit rating of A, however it devotes much less of its portfolio to State General Obligation bonds (some of the safest) than other funds in its category. It also has more invested in junk bonds and riskier sectors such as healthcare bonds than other funds in this category. From an interest rate risk standpoint, the fund’s duration of 7.12 is also higher than the category average.
Fees: Excellent There is no front load for this share class of the fund, which is available through online brokers such as Fidelity. The annual expense ratio is .41%. This is much lower than most actively managed funds. You can learn more about mutual fund fees here.
Manager Tenure: Excellent The American Funds Tax Exempt Bond Fund’s lead manager on the fund Neil Langberg has been with the fund for 32 years and his two co managers have been with the fund 8 and 13 years