Tax-free municipal bonds outperformed taxable bonds in the fourth quarter. Intermediate- and long-term Treasury interest rates increased as the economy continued expanding and as Congress agreed late in the year on a two-year budget deal that could add slightly to 2014 economic growth. The Federal Reserve announced in mid-December that it will begin to curtail its $85 billion of monthly asset purchases in January. The 10-year Treasury note yield rose to 3.03% by the end of 2013, the highest level in about two and a half years. In the municipal market, long-term interest rates rose, but not as much as Treasury yields, while shorter-term yields declined or were flat. BBB rated municipals in the investment-grade universe fared worse than higher-quality tiers.
The Summit Municipal Intermediate Fund returned 0.39% in the quarter compared with 0.34% for the Barclays Intermediate Competitive (1−17 yr maturity) Bond Index and 0.17% for the Lipper Intermediate Municipal Debt Funds Average. For the 12 months ended December 31, 2013, the fund returned −1.16% versus −1.05% for the Barclays Intermediate Competitive (1−17 yr maturity) Bond Index and −2.18% for the Lipper Intermediate Municipal Debt Funds Average. The fund's average annual total returns were −1.16%, 5.13%, and 3.88% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.50% as of its fiscal year ended October 31, 2012.
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The portfolio's exposure to transportation, power, and prepaid gas credits contributed positively to fund performance during the quarter. Revenue-backed securities in general did well over the period. The call structure of our holdings also helped, as they benefited in an environment in which intermediate- and long-term rates moved higher. However, the portfolio's slightly long duration (a measure of a bond fund's sensitivity to changes in interest rates) was detrimental. Specifically, our relatively high allocation to 10-year bonds weighed on results as rates increased. Rising municipal yields reflected higher Treasury yields, although tax-free yields did not rise to the same extent.
The decline in municipal bond prices in 2013 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 that it is a high-quality market, with good investment opportunities for those with a long-term focus, particularly for those in the highest tax brackets. The poor performance of long-term municipals in 2013 makes their nominal and taxable-equivalent yields 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 will remain careful with any investment shift that might materially increase our portfolio's interest rate sensitivity. We do believe, however, that future rate increases will be more modest than those experienced in 2013.