BondView to run the rule over muni bond funds

BondView LLC, which offers a free site for municipal bond investors, has launched municipal bond fund ratings. Unlike Morningstar Inc. or Lipper Inc., which rate municipal bond funds based on past performance, BondView’s ratings are based on ratings of the individual bonds within the portfolios, said Robert Kane, founder of BondView. “Municipal bond funds are greater than the sum of their holdings,” Mr. Kane said. “This isn’t just ratings-based on risk-adjusted past performance, we are trying to incorporate a holdings-based analysis.”
BondView has been rating individual bonds for the past year. Those ratings are based on a proprietary approach that doesn’t take into consideration third-party credit ratings, Mr. Kane said. Starting today, investors will be able to go to BondView’s website and access real-time ratings for 100 open-end and closed-end municipal bond funds. Over the next several months, the firm hopes to make ratings available for all municipal bond funds. All of the ratings will be available for free on the firm’s website.
The ratings are based on five criteria: market pricing, duration, income stream and maturity, market sector, as well as diversification. Each fund will be rated between A-F for each category and then assigned an overall score, Mr. Kane said.
Regulators are increasingly scrutinizing the transparency — or lack thereof — of municipal bond funds. In May 2010, the Securities and Exchange Commission launched an investigation of the municipal bond market. Since then, the Municipal Securities Rulemaking Board, which oversee municipal bond issuers and sellers, has proposed or passed rules designed to increase disclosure of information about municipal bonds.
“The municipal bond market isn’t transparent enough and when you put a layer of funds over it, it makes it even cloudier,” Mr. Kane said. “We are trying to put all of the funds under a microscope.”