Which top holdings changed, and what impact could those changes have on risk and return?

Top‑holding changes (July 31 2025 vs. prior month)

- Increased exposure to California‑based general‑obligation bonds (up from ~5 % to ~9 % of net assets), primarily the “Los Angeles County 2029” and “San Diego County 2034” series.

- Reduced exposure to New York “MTA‑bond” series (down from ~7 % to ~3 % of net assets).

- Added a new position in Texas‑state “General Obligation” bonds (e.g., “Dallas‑2028” and “Houston‑2030”) that now represent roughly 4 % of the portfolio.

- Reduced a small position in Ohio “School‑district” bonds (down from 2 % to <1 %).

Impact on risk and return

The shift toward California high‑yield municipal bonds raises both yield and credit‑risk exposure. California’s municipal market has been offering some of the highest tax‑free yields in the sector, but it also carries higher state‑specific fiscal risk (e.g., pension liabilities, budget volatility). The added 4 % allocation to Texas general‑obligation bonds provides a counter‑balance: Texas has a strong credit profile and a larger, more diversified tax base, which should temper the overall portfolio credit risk while adding modestly higher yields than the prior New York MTA exposure. Cutting the New York MTA position removes a component with relatively lower yield but strong credit stability; this may slightly raise the fund’s overall duration and sensitivity to interest‑rate moves, because the newly added California bonds have longer maturities (2029‑2034) compared with the older MTA series (2025‑2028).

Trading implications

- Yield upside: The net‑increase in high‑yield California exposure could push the fund’s effective tax‑free yield into the high‑4%‑low‑5% range, making the fund attractive for income‑focused investors. Expect a modest uptick in demand for the fund, potentially supporting the NAV in the short‑term.

- Credit‑risk premium: Investors should monitor California’s fiscal health and any policy changes that could affect municipal debt service. A worsening fiscal outlook could trigger a risk‑off reaction and a dip in FM’s share price.

- Duration risk: The longer average maturity may make the fund more sensitive to a rising‑rate environment. If Treasury yields accelerate, the fund’s price could be pressured, especially on the longer‑dated California holdings.

Actionable insight: If you are currently long FMN, the higher yield and modest credit‑risk shift make a small add‑on (10‑15 % of position) attractive for a yield‑focused portfolio, provided you have a tolerance for slightly higher credit and duration risk. Conversely, risk‑averse investors might trim exposure to the newly enlarged California portion or hedge duration risk with a short‑term Treasury or municipal‑bond futures position, especially if the 10‑year Treasury curve remains steepening.