Principal Funds has rolled out the Principal Opportunistic Municipal Fund, which can invest across a broad range of credit qualities, durations and geographic exposures, pursuing greater overall diversification.

Doug Gaylor, the fund’s portfolio manager, said that “being unconstrained by a benchmark or index means we can move up and down the municipal spectrum in terms of maturity, credit quality and geographic issuance. For example, a typical high-yield municipal bond fund would have its allocation to high yield set at 50% or more, and a regular municipal fund would have a maximum allocation of 25% to high-yield municipal bonds. In contract, the Opportunistic Municipal Fund has the ability to hold an allocation from zero to 60% of its holdings in high-yield issuance.”

The fund’s “target is approximately 25 to 50 basis points of excess return, as opposed to a range of 10 to 25 basis points for a traditional municipal bond fund,” said Jim Noble, senior fixed income analyst. “We will not take on added credit risk for the fund; we feel it’s best to differentiate ourselves through many small successes rather than relatively few home runs,” he said.

With 28 years of investment experience, Gaylor has managed 18 municipal mutual funds including short-, intermediate- and long-duration funds at other firms. Principal Global Investors’ four-person team currently manages more than $3.5B in municipal fixed-income assets.

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