Long-term municipal bond prices fell and yields rose during the third quarter, although the 30-year yield finished below its highest level for the period. Short- and intermediate-term securities performed better than long-term issues as yields declined. Lower-quality municipals in the investment-grade universe fared worse than higher-quality issues, and high yield munis also struggled. The U.S. economy grew at a moderate 2.5% pace in the second quarter of 2013, overcoming the headwinds stemming from higher tax rates and federal spending reductions that took effect earlier in the year.
The Summit Municipal Intermediate Fund returned 0.64% in the quarter compared with 0.58% for the Barclays Intermediate Competitive (1−17 yr maturity) Bond Index and 0.31% for the Lipper Intermediate Municipal Debt Funds Average. For the 12 months ended September 30, 2013, the fund returned −1.17% versus −0.95% for the Barclays Intermediate Competitive (1−17 yr maturity) Bond Index and −1.97% for the Lipper Intermediate Municipal Debt Funds Average. The fund's average annual total returns were −1.17%, 5.28%, and 3.96% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.50% as of its fiscal year ended October 31, 2012.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
Our security selection helped performance during the past three months, as our holdings in health care, power, and special tax credits were the main drivers of fund results. Our positioning along the yield curve and management of duration (a measure of a bond fund's sensitivity to interest rate fluctuations) were negative as the portfolio's modestly long duration and overweight allocations to 10- and 20-year bonds weighed on returns. The fund's sector allocations were neutral. Puerto Rico's fiscal issues have recently occupied the headlines and led to wider spreads and underperformance of Puerto Rico bonds. We maintained only a minimal exposure to these securities.
The decline in municipal bond prices has rattled some investors, but it does not represent a fundamental change in the nature, quality, or risk characteristics of the market. We continue to believe it is a high-quality market, with good investment opportunities for those with a long-term focus looking for attractive tax-free income, particularly for those in the highest tax brackets, in what is still a very low interest rate environment. The recent underperformance of long-term munis makes their nominal and tax-equivalent yields even more attractive, but if market outflows persist and rates resume rising, further price declines are likely. Given the potential for rates to rise further, we are careful about any investment shift that might materially increase the portfolio's interest rate sensitivity. That said, we believe future rate increases will be more modest than those we have seen in recent months.