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Dreyfus Bet on Tobacco Bonds Pays Off With Top Muni Fund Returns Fund avoided Puerto Rico, FirstEnergy Solutions bonds Nuveen, Goldman Sachs high yield funds rounded out top three Dreyfus Corp.’s $170 million high-yield municipal-bond fund is beating bigger and better-known competitors by riding a rebound in tobacco bonds while avoiding pitfalls such as Puerto Rico debt. fund returned 10.2 percent through the first three quarters of the year. High-yield tax-exempt funds managed by Goldman Sachs Asset Management ranked second and third, respectively. Dreyfus’s fund held almost 11 percent of its portfolio in tobacco bonds at the end of July and benefited from a 18.5 percent run-up in the debt in the year’s first half. Tobacco bonds rebounded after money managers dumped the securities -- among the most liquid high-yield municipal bonds -- to meet redemptions during the bond-market rout that erupted after President Donald Trump’s victory. Refinancings by New York City and California and moderate smoking declines have also boosted performance. “After it became clear Trump wasn’t going to his enact his agenda, there was a strong tobacco rally and we were well positioned for that," said Dan Barton who co-manages the Dreyfus fund with Jeffrey Burger in Boston. “A lot of funds are looking for yield-ier alternatives to Puerto Rico." High-yield munis returned 7.7 percent through the third quarter, three percentage points more than investment grade municipal bonds, according to Bloomberg Barclays Indexes. The sector has benefited from an imbalance in supply and demand. Two-thirds of the $10.5 billion investors added to the municipal market this year flowed into high-yield funds, according to Lipper U.S. Fund Flows data. Meanwhile, just $2.5 billion unrated or speculative grade municipal bonds has been issued through the third quarter, a 50 percent decline from the same period last year, according to data compiled by Bloomberg.

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