Over the past three months, the California Intermediate Tax-Exempt Fund returned a positive 0.13%. We maintained our duration overweight versus the benchmark, as the Fund retained exposure to longer-maturity California securities. Quality spreads continue to be stubbornly narrow, as bond buyers focus on adding tax-exempt yield via lower-quality credits. Amid uncertain economic conditions, we continue to prefer higher-rated credits. However, we are looking to increase returns in the Fund by adding bond structures i.e., lower coupons and shorter calls that offer enhanced yield opportunities. As of March 31, the Fund held less than 1% of portfolio assets in BBB-rated municipals.
The municipal market is currently focused on the federal budget debate and its potential impact on demand for tax-exempt bonds. Within California, we plan to track the technical condition of the states municipal market as investors search for relief in a higher tax-rate environment.
If you are an investor who favors current income exempt from federal income tax and who is looking for an investment intended to be exempt from California state personal income tax, this Fund may be ideal for you. It is particularly well suited for income-oriented investors in higher tax brackets willing to assume some risk. Income from the Fund may be subject to federal alternative minimum tax (AMT), state and local taxes.
- Concentrate our investments in California state-specific, investment-grade municipal instruments which are exempt from federal income tax and California state personal income tax while maintaining an average maturity, under normal circumstances, between three and 10 years.
- Invest in high-quality securities, primarily investment-grade debt.
- Select investments on the basis of their relative value with a focus on total return.