Dreyfus Intermediate Municipal Bond Fund

Class No Load (DITEX)
Scorecard
3 / 5 Stars
Lipper
4 4 3 2 1
Zacks Investment Research
1 (Strong Buy)
Standard & Poor's
4 / 5 Stars
TheStreet.com
A (Buy)

#17 in Muni National Interm

U.S. News evaluated 82 Muni National Interm Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned 0.16 percent over the past year, 4.86 percent over the past three years, 4.97 percent over the past five years, and 3.68 percent over the past decade.

Trailing Returns Updated 02.28.2014
Year to date 2.9%
1 Year 0.2%
3 Years (Annualized) 4.9%
5 Years (Annualized) 5.0%
10 Years (Annualized) 3.7%

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Summary

After a series of management changes over the past two years, Dreyfus Intermediate Municipal Bond fund has refined its strategy by exiting the high-yield junk bond arena and beefing up positions in higher-quality municipal bonds.

As of March 05, 2014, the fund has assets totaling almost $800.51 million invested in 210 different holdings. Its portfolio consists of municipal bonds (bonds issued by states, cities, counties, and other government entities to fund public projects).

This municipal bond fund managed to eke out a positive return during the financial crisis in 2008, narrowly beating its benchmark and category. Although the fund didn’t perform quite as well as its peers or benchmark in 2009, double-digit returns helped it recover from 2008’s rocky run.

After the bond market rally in 2009, manager Steve Harvey reduced the fund’s exposure to higher-yielding market sectors, such as corporate bonds, and redistributed those assets to higher-quality securities such as U.S. treasury bonds and U.S. government agency-backed mortgage bonds. “We expect the economic recovery to continue to be rather lackluster,” Harvey says. “In a lackluster economic environment, we definitely want to be going with the higher-quality credits whether they’re revenue bonds or tax-backed general obligation bonds.”

Going forward, Harvey sees opportunity in the rather beaten-down municipal bond market. “We feel they’re [state and local municipal bonds] getting punished in the marketplace because of the negative headlines we’ve seen about state and local credit quality,” he says. “But we are firmly convinced that the states are going to ride through this economic downturn.” According to Harvey, the fund has “opportunistically” picked up muni bonds at prices well below what current credit quality would usually command. The fund has returned 0.16 percent over the past year and 4.86 percent over the past three years.

Historically, this fund has been a fairly average performer, routinely—albeit narrowly—underperforming its benchmark and peers. The fund’s 10- and 15-year annualized trailing returns of about 4 percent put it in the bottom quarter of Morningstar’s national intermediate-term municipal bond category. Returns over the shorter term have reliably landed the fund in the top half of that category. The fund has returned 4.97 percent over the past five years and 3.68 percent over the past decade.

Investment Strategy

This fund seeks to generate income exempt from federal taxes while preserving capital and keeping volatility to a minimum. Management usually invests at least 80 percent of total assets in municipal bonds with a credit rating of A or higher. According to the prospectus, remaining assets might be invested in lower-quality municipal bonds, including below-investment-grade bonds, or “junk” bonds. However, since 2009, management shifted assets away from riskier investments and redeployed that money into higher-quality bonds. "We want to be very sure that the credits we buy are stable and that we're being compensated for whatever credit risk there is," Harvey says.

The fund has a strong emphasis on revenue bonds as opposed to general obligation municipal bonds. Revenue bonds, which are bonds backed by the revenue of a specific public project, tend to be less economically sensitive than the tax revenue that backs general obligation bonds, Harvey says.

Role in Portfolio

Morningstar calls this fund a core investment.

Management

Steve Harvey joined the fund in April 2009 and, after a series of management departures, now has primary responsibility for the fund. Harvey has extensive experience in the fixed-income realm, first at Standard & Poor’s and then as a manager at Fidelity. He works in conjunction with a team of 24 municipal bond professionals including tax-sensitive fixed income managing director Christine Todd and senior portfolio manager Tom Casey. Longtime manager Monica Wieboldt retired in 2008 after more than 20 years with the Dreyfus Intermediate Municipal Bond fund. Doug Gaylor took over after Weiboldt retired but left the firm in October 2009.

Fees

Dreyfus Intermediate Municipal Bond Fund has an expense ratio of 0.73 percent.

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Risk

One of the biggest risks for this fund going forward is rising interest rates. Rates, at near-zero levels as of late 2010, can only go up, which will cause bond prices to fall. As an intermediate-term bond fund, the average effective duration of the fund’s bonds is about five years, which could expose investors to interest-rate risk.

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