Aggressive Trader Tops Tax-Exempts

It's shaping up to be a memorable year for Ronald H. Schwartz, manager of SunTrust Banks' top-performing tax-exempt bond fund. First, he led the STI Classic Investment-Grade Tax-Exempt Fund to the head of its class for the 12 months ending Sept. 30. Its total return of 11.31% was the best among 111 intermediate-term municipal debt funds including those run by nonbanks. Now, Mr. Schwartz is guiding the fund toward another honor: it is, he says, on track to become the top performer in its group for the three years ending Dec. 31. The fund has been able to outrun the pack by vigorously gathering and shedding bonds to maximize returns. The trading style is perhaps a bit more aggressive than other funds of its type, Mr. Schwartz said. However, he added, we don't make major bets on where interest rates are going. The $150 million-asset fund is structured for long-term investors who want above-average returns from municipal offerings. Three-quarters of its holdings are AAA-rated securities, Mr. Schwartz said. Mr. Schwartz, 39, has been managing the Investment Grade Tax-Exempt Fund since its inception in 1992. He arrived at the Orlando headquarters of SunBank Capital Management in 1989 after several years as a municipal bond trader for Bank of Boston. The fund is one of 14 portfolios in SunTrust's $5.5 billion-asset STI Classic Mutual Funds family. SEI Corp., Wayne, Pa., serves as distributor. One of Mr. Schwartz' tactics is to look for investment opportunities that other fund managers might pass by. For instance, he said, every once in a while a state whose bonds are fetching a premium miscalculates demand and sends an oversupply into the market. Mr. Schwartz and two assistants will buy up the bonds, hold them until supply dwindles, then sell the paper for a respectable gain. We look for occasions when there is not enough supply for demand, he said. Certain New York and Florida bonds are currently lending themselves to that strategy, he added. Although the fund has been available only through SunTrust offices, the banking company is preparing to take it to a wider audience. By yearend, SunTrust will begin marketing the Investment Grade Tax-Exempt Fund to institutional investors, such as insurance companies and hospitals, according to James R. Wood, president of SunBank Capital Management. After that, he intends to turn his attention to retail expansion through unaffiliated brokerage firms.