DALLAS – As the subprime mortgage crisis unfolded in the latter part of 2007 and took its toll on the municipal market – specifically the bond insurance industry – one sector of tax-exempt mutual funds was quietly outperforming all other categories.

In the fourth quarter, in all of 2007, and even in two-year trailing returns, insured municipal debt funds performed better than all other categories, according to Lipper Inc. These funds are also benefiting from better inflows when compared to other muni fund categories, according to AMG Data Services.

Lipper reports that in the fourth quarter of 2007, cumulative total reinvested performance for the 53 insured muni funds with $11.2 billion of assets under management was 0.57%. For general muni debt funds – it tracks 248 funds with $82.3 billion of assets under management for this category – the return was 0.07%. For the 105 high-yield funds with $46.9 billion the return was negative 2.51%.

With solid performance compared to other categories, insured funds had better flows. AMG reported on Jan. 10 that the four-week moving average of inflows for insured municipal mutual funds was $4.8 million. The four-week moving average for all muni funds was an outflow of $593.7 million. On Dec. 5 the four-week moving average for insured funds was positive $9.2 million, whereas the same average for all funds was negative $156.5 million.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.