Tax-free municipal bonds produced gains in the first quarter of 2015 but lagged taxable bonds. Munis benefited from a rally in Treasuries, as longer-term interest rates declined amid slowing U.S. economic growth, low inflation, attractive yields relative to sovereign debt in developed non-U.S. countries, and a belief that the Federal Reserve will not raise short-term interest rates hastily or rapidly. In the muni market, lower-quality, longer-maturity revenue bonds generally outperformed higher-quality, short-maturity issues and general obligation (GO) debt, as investors continued to seek attractive yields in the ongoing low-rate environment.
The Tax-Free Short-Intermediate Fund returned 0.36% in the quarter compared with 0.49% for the Barclays 1−5 Year Blend (1−6 Year Maturity) Index and 0.33% for the Lipper Short-Intermediate Municipal Debt Funds Average. For the 12 months ended March 31, 2015, the fund returned 1.69% versus 1.72% for the Barclays 1−5 Year Blend (1−6 Year Maturity) Index and 1.91% for the Lipper Short-Intermediate Municipal Debt Funds Average. The fund's average annual total returns were 1.69%, 2.19%, and 3.06% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.50% as of its fiscal year ended February 28, 2014.
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We prefer revenue bonds in general because they offer the relative security of specific claims on revenues versus the generic pledges of taxing power associated with GOs. However, the size of the fund's overweight to revenue debt has moderated as we are finding more value in some higher-quality GOs. The portfolio's overweight allocation in the health care sector benefitted its performance relative to the benchmark. We also had a modest position in 10-year bonds, which are not included in the benchmark, that helped our relative performance. On the negative side, security selection in the special tax and industrial revenue segments weighed on relative performance. As always, we focus on finding attractively valued bonds issued by municipalities with good long-term fundamentals.
We believe that the municipal bond market remains a high-quality market that offers good opportunities for long-term investors seeking tax-free income. While fundamentals are sound overall and technical support should persist, there could be hurdles later in 2015. In particular, with the Fed preparing to tighten monetary policy, we are mindful that rising rates would likely weaken the appetite for bonds with higher interest rate risk. Ultimately, we believe T. Rowe Price's independent credit research is our greatest strength and will remain an asset for our investors as we navigate the current market environment.