Municipal bonds enjoyed a strong quarter amid declining yields, increased demand, reduced issuance, and a successful early-March sale of bonds issued by Puerto Rico, which was downgraded to below investment grade by the major credit rating agencies in February. High yield tax-free bonds were especially robust and outperformed the investment-grade universe, as investors continued to favor securities with a yield advantage. Longer-term Treasury yields declined from the two-year highs reached at the end of 2013, as weakness in certain emerging markets and geopolitical tensions over Ukraine prompted some risk aversion.
The Summit Municipal Income Fund returned 4.09% in the quarter compared with 3.32% for the Barclays Municipal Bond Index and 3.79% for the Lipper General & Insured Municipal Debt Funds Average. For the 12 months ended March 31, 2014, the fund returned −0.27% versus 0.39% for the Barclays Municipal Bond Index and −0.73% for the Lipper General & Insured Municipal Debt Funds Average. The fund's average annual total returns were −0.27%, 7.07%, and 4.62% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.50% as of its fiscal year ended October 31, 2013.
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Our maturity and interest rate positioning benefited fund results during the quarter. We were overweight in intermediate- and longer-term securities and modestly underweight in shorter maturities, which aided performance as bonds with longer than six-year maturities did well. Our credit selection was also helpful, particularly our allocations within the revenue-backed areas, including special tax credit securities. On a negative note, our sector allocations overall were a slight drag on performance. There were some shifts in the fund's quality diversification. High-quality AAA holdings declined due to a drop in elevated cash levels during the previous reporting period. A rated bonds compose the largest portion of the fund. The fund is overweight A and BBB rated holdings since we believe they offer greater value than their higher-quality counterparts.
Despite recent headlines about problems in Detroit and Puerto Rico, municipal bonds remain sound overall, with low default rates. We expect interest rates to rise due to Fed tapering and eventual monetary tightening, but rates should stabilize at higher levels. We believe the U.S. economy will continue to improve and inflation will remain subdued. Declining tax-free bond supply has been providing a tailwind for our market, and we expect this condition to continue for the remainder of the year. With elevated interest rates likely to come, the new marginal tax rate for affluent municipal investors will rise, making tax-equivalent yields increasingly compelling as the year progresses.