Virginia municipal bonds produced modest gains in the first quarter of 2013. Long-term municipal yields rose with long-term Treasuries amid favorable economic data, reduced U.S. fiscal policy uncertainty, and increased investor willingness to invest in equities and other risk assets. Shorter-term municipal securities narrowly outperformed longer-term issues, and lower-quality issues with a yield advantage outpaced investment-grade issues. With municipal yields about the same as Treasury yields across the yield curve, tax-free securities are an attractive alternative for fixed income investors.
The Virginia Tax-Free Bond Fund returned 0.36% in the quarter compared with 0.22% for the Lipper Virginia Municipal Debt Funds Average. For the 12 months ended March 31, 2013, the fund returned 5.66% versus 4.97% for the Lipper Virginia Municipal Debt Funds Average. The fund's average annual total returns were 5.66%, 6.05%, and 4.69% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.48% as of its fiscal year ended February 29, 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.
Benchmark Definitions
Because Virginia is a well-managed, bondholder-friendly state, we tend to have higher weights in the AAA and AA rated credit baskets, as lower-quality investment-grade opportunities are scarcer. We also mostly hold state agency debt given the limited opportunities to buy pure general obligation debt. We have a significant allocation to the transportation segment, where we prefer essential service revenue bonds, particularly high-quality airports and toll roads. Our exposure to Virginia hospitals is also significant. While Virginia has fewer hospital issuers than other states, it has several large, high-quality hospital systems. We maintain modest exposure to riskier assets, such as life care and tobacco bonds, but we have added slightly to our life care exposure recently in order to capture the attractive risk-adjusted yields available in Virginia. We have been avoiding Puerto Rico debt, particularly general obligation issues.
While we are pleased with the tremendous performance of municipal bonds over the last two years, we believe that returns in the period ahead will moderate, as the credit and economic environment for municipalities will likely remain challenging and yields are unlikely to fall significantly from current levels. Modest economic growth and improving income and sales tax revenues are providing some support for state and local governments. However, cutbacks in state support for municipalities and persistent downward pressure on property tax revenues could keep local municipal issuers vulnerable. If the economy slides back into a recession, which we are not currently predicting, municipalities will face even tougher challenges. We believe T. Rowe Price's strong credit research capabilities have been and will remain an asset for our investors. We continue to conduct our own thorough research and assign our own independent credit ratings before making investment decisions. As always, we are on the lookout for attractively valued bonds issued by municipalities with good long-term fundamentals. This is an investment strategy that we believe will continue to serve our investors well.
Feedback