Tax-Free Fund growing, manager says

Strong demand for municipal bonds is pushing yields lower, and that is making it difficult for fund managers to find attractive returns, according to Kimball Young, senior vice president of the Aquila Group of Funds, a New York-based investment management company.

On Friday, Young addressed shareholders in downtown Salt Lake City at the annual meeting of the Tax-Free Fund For Utah, a municipal bond fund with roughly 3,000 shareholders and $230 million under management.

Young, who serves as portfolio co-manager of the Tax-Free Fund For Utah, described the past year as "perplexing" and "challenging," as too many dollars are chasing the same deals, thereby driving down yields.

The Utah fund specializes in mostly state projects, which include everything from school buildings and water projects to roads and electricity improvements.

"We try to find the smaller, non-rated, quality, higher-yielding bonds, but because there is such demand for paper it is pushing yields down," Young said. "There is just not a whole lot of opportunity to find a lot of high-yielding bonds anymore."

Despite low yields, which are averaging about 4 percent, the bonds are exempt from state and federal taxes. For someone in a mid-range tax bracket, the tax advantage translates into a 6.5 percent to 7.5 percent return, Young said.

The Utah fund, which is sold through stock brokers and financial advisers, is invested in projects like TRAX, the Salt Lake City International Airport, infrastructure improvements around the Jordanelle Reservoir and a water project at Promontory, a gated second-home community in Summit County.

The Utah fund is growing about $4 million a month, which Young describes as exceptional in today's competitive market.

Sen. Lyle Hillyard, R-Logan, who also serves on the board of trustees for the Utah fund, said the criteria for the fund is security.

"We believe that is the purpose of this fund, is to make sure that your money is safe, and that the return is a reasonable return," Hillyard said.

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