While some municipal bond managers may use leverage and derivative instruments to drive returns, at Franklin, we focus exclusively on maximizing monthly tax-free income for our investors through a conservative approach. Historically, income has been the primary driver of municipal bond total returns, contributing more than price appreciation over the long-term. Please remember, past performance does not guarantee future results.
Income: An Important Component of Total Return
Bloomberg Barclays Municipal Bond Index
20-Year Period Ended December 31, 2018
% OF TOTAL RETURN
Income...............................................102.6%
Appreciation on Initial Investment............-2.6%
© 2018 Barclays Live. Bloomberg Barclays, 12/31/2018. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. All rights reserved. The information contained herein: (1) is proprietary to Bloomberg Barclays and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Bloomberg Barclays nor its content providers are responsible for any damages or losses arising from any use of this information. Total return includes compounded income and capital appreciation or depreciation. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
1. Low supply should help buoy municipal bond prices
Recent new muni supply has been constrained, as shown by the dark blue bars below. And supply is forecasted to remain low through at least 2017.1
U.S. Municipal Bond Issuance3,4
2006-2016 (in Billions)
New Money
Refunding
Combined
2. Municipal bonds have provided more income recently than other bonds
Munis provided a higher tax-equivalent yield than most other types of bonds, as of December 31, 2018. Given current tax rates, the tax-free benefit of munis makes them very attractive. Use our Taxable-Equivalent Yield Calculator.
Municipal Bond Yields Have Remained Strong2,5
Yield-to-Worst as of December 31, 2018
Tax Equivalent Yield
Yield
Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; interest payments and principal are guaranteed. Past performance does not guarantee future results.
3. Municipal bonds may add an additional layer of diversification
Like other bonds, munis have had a low correlation to stocks, and in some cases negative. But munis may also offer an additional benefit — they’ve had a lower correlation to other types of bonds, as well.
Municipal Bond Correlations With Various Asset Classes7
5-Year Period Ending December 31, 2018
Correlation is the statistical measure of the degree to which the movements of two variables are related; 1 = perfect positive correlation, 0 = no correlation, and -1 = perfect negative correlation.
4. Municipal bonds’ historically lower default rate may mean less risk than other types of bonds
Aside from the few cases of potential defaults focused on by the media, munis have historically had a very low default rate compared to other fixed income investments.
Average Cumulative 10-Year Default Rates6
1970-2017
Today, we are one of the largest municipal fund managers in the nation with $63 billion in municipal bond assets under management as of 12/31/2018. Our reputation and sizeable assets under management gives us access to almost every new bond issue.
We offer one of the industry’s largest municipal product lines with over 30 strategies that focus on all major areas of the market.
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FALZX | Franklin Alabama Tax-Free Income Fund - Advisor |
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FAZZX | Franklin Arizona Tax-Free Income Fund - Advisor |
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FCOZX | Franklin Colorado Tax-Free Income Fund - Advisor |
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FFTZX | Franklin Florida Tax-Free Income Fund - Advisor |
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FGFZX | Franklin Georgia Tax-Free Income Fund - Advisor |
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FKTZX | Franklin Kentucky Tax-Free Income Fund - Advisor |
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FMDZX | Franklin Maryland Tax-Free Income Fund - Advisor |
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FMTFX | Franklin Michigan Tax-Free Income Fund - Advisor |
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FRMZX | Franklin Missouri Tax-Free Income Fund - Advisor |
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FROZX | Franklin Ohio Tax-Free Income Fund - Advisor |
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FOFZX | Franklin Oregon Tax-Free Income Fund - Advisor |
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FTMZX | Franklin Tennessee Municipal Bond Fund - Advisor |
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FRVZX | Franklin Virginia Tax-Free Income Fund - Advisor |
See a full list of Franklin Templeton Municipal Bond Funds.
Important Legal Information
What Are the Risks?
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the fund's yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the fund adjust to a rise in interest rates, the fund's share price may decline. Puerto Rico municipal bonds have been impacted by recent adverse economic and market changes, which may cause the fund's share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond's issuer, insurer or guarantor, may affect the bond's value. The fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. By clicking on the fund name, you will be taken to a more detailed fund information page which includes main investments and risks.
To view the latest publicly disclosed Puerto Rico holdings information, please click here.
Your clients should carefully consider a fund’s investment goals, risks, charges and expenses before investing. Download a prospectus, which contains this and other information. Your clients should read the prospectus carefully before they invest or send money.