Investing In Municipal Bond Funds Post-Meredith Whitney (PZA, MUB, PML)

Meredith Whitney stirred up panic with her apocalyptic prediction that 50 to 100 sizeable municipality defaults will occur in the next year, as Benzinga readers already know. Municipal bonds have long been popular investment vehicles due to their modest return and considerable tax advantages. However, since Whitney's prediction on television show 60 Minutes in late December, a plethora of backlash has ensued. Whitney has been criticized by many, but she defends her position by saying it is nothing different than what other congressmen have already said, Benzinga readers know. Whitney's critics include California Treasurer Bill Lockyer, who attacked her intelligence stating she has a “stunning lack of understanding,” according to the Bloomberg article. In light of her widely publicized prediction, municipal bond funds and ETFs have experienced less than stellar performance. As of January 19, investors removed $4 billion from municipal bond funds, the most since 1992 when data was compiled. ETFs such as PowerShares Insured National Muni Bond PZA and iShares S&P National AMT-Free Muni Bd MUB experienced brief dips in response the prediction before making a slight recovery. If Whitney is indeed correct and sizeable defaults do occur, perhaps the $4 billion pulled out of municipal bond funds was a good idea. However, many do not agree with her assessment and remain confident that municipal bond funds are still a relatively safe investment. Investors who wish to take a gamble on the side of municipality may consider investing in the above ETFs or a municipal bond closed end fund such as Pimco Municipal Income Fund II PML or a regular fund like Oppenheimer Rochester National Muni A ORNAX or DWS Managed Managed Municipal Bonds S SCMBX. These funds have all been hammered recently which may prove to be a good buying opportunity for investors who believe in the security of municipalities. Neither Benzinga nor its staff recommends that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.