Municipal Bond Fund Collapse: Why Direct Portfolio Management Protects Kentucky Retirement Plans

Municipal Bond Fund Collapse: Why Direct Portfolio Management Protects Kentucky Retirement Plans

---

When a municipal bond fund collapsed 50% in just two days, it sent shockwaves through the investment world and highlighted critical differences between fund investing and personalized investment management. In this episode of The Tom Dupree Show, we examine the catastrophic failure of the Easterly Funds Rock High Income Municipal Bond Fund and why direct portfolio management often is more effective for Kentucky retirement planning.

Host Tom Dupree, with over 47 years of experience in municipal bonds starting in 1978, breaks down exactly what happened when redemption pressures forced fund managers to sell speculative bonds at “garbage prices,” devastating investors who thought they owned secure municipal investments.

The Municipal Bond Fund Collapse That Changed Everything

The Easterly Funds Rock High Income Municipal Bond Fund experienced one of the most dramatic collapses in recent memory, dropping from nearly $7 per share at the beginning of the year to just $2.95. This municipal bond fund collapse wasn’t due to a single catastrophic event, but rather the dangerous combination of speculative investments and the structural vulnerabilities inherent in open-end mutual funds.

“This bond fund declined 50% in two days. It was trading at $6.31 on June 6th and June 11th, and it’s now at $2.95. At the first of the year it was almost $7.” – Tom Dupree

What Triggered the Collapse

The fund faced massive redemption pressures during market volatility in April:

• 24 million in redemptions (10% of the $245 million fund) in the first month
• 21 million in additional redemptions the following month
• Forced liquidation of speculative bonds at severely discounted prices
• Bonds priced at 70 cents on the dollar sold for just 3 cents

Why Direct Portfolio Management Outperforms Mutual Funds

This collapse perfectly illustrates why Dupree Financial Group doesn’t operate as a mutual fund and generally avoids investing client money in funds. Our personalized investment management approach provides several critical advantages:

Individual Account Protection

“Every client has his or her own securities in his or her account. Why is that important? It’s important because it makes sure that you’re not penalized by other people’s selling at a time when the markets are being impacted.” – Tom Dupree

Direct Research and Company Communication

Rather than relying on fund managers’ decisions, our team:

• Conducts direct research with companies
• Reviews financial statements firsthand
• Maintains accountability directly to clients
• Selects individual securities without intermediary layers

Superior Liquidity Management

Unlike mutual funds that must sell holdings to meet redemptions, individual portfolios avoid forced liquidations that can devastate returns during market stress.

Investment Complacency: The Hidden Danger in Bull Markets

The episode also addresses growing investment com