Tax-free municipal bonds produced strong gains in the first quarter and outperformed taxable bonds. Performance has been boosted by limited supply, as higher long-term interest rates since mid-2013 have discouraged municipalities from borrowing and refinancing older debt. Austerity-minded state and local government leaders also remain conservative about adding to indebtedness, which we consider to be supportive of muni prices.
The Virginia Tax-Free Bond Fund returned 3.71% in the quarter compared with 3.90% for the Lipper Virginia Municipal Debt Funds Average. For the 12 months ended March 31, 2014, the fund returned −0.27% versus −2.31% for the Lipper Virginia Municipal Debt Funds Average. The fund's average annual total returns were −0.27%, 5.56%, and 4.12% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.47% as of its fiscal year ended February 28, 2013.
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.
We continue to believe that revenue-backed bonds offer more value than general obligation issues, and we have a preference for those backed by education, hospital, housing, and transportation revenues. Higher-yielding credits are scarce in Virginia due to the generally high-quality ratings of its issuers, so we have sought to add yield through investing in longer-term issues. Despite our willingness to invest in lower-rated credits when we see an attractive risk/reward tradeoff, we have largely steered clear of territorial debt due to its generally poor credit profile. In particular, we have no exposure to the troubled debt of Puerto Rico.
We believe that the municipal bond market is a high-quality market, with good investment opportunities for those with a long-term focus and attractive tax-free income (particularly for those in the highest tax brackets) in what is still a very low interest rate environment. While strong first-quarter performance on the heels of last year's muni market downturn is encouraging, price declines are likely if cash outflows resume, if interest rates start rising again, or if there are additional negative credit headlines. We will continue to rely on the careful work of our large team of credit analysts in attempting to find opportunities for our shareholders.