The municipal bond space is already seeing heightened interest thanks to a Joe Biden presidential victory, which has debt market analysts forecasting more gains for municipal bonds due to future tax hikes. ETF investors looking to get on the short end of the yield curve for munis can look at funds like the VanEck Vectors Short Muni ETF (SMB ).
The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays AMT-Free Short Continuous Municipal Index. The fund normally invests at least 80% of its total assets in fixed income securities that comprise the index.
The index is comprised of publicly traded municipal bonds that cover the U.S. dollar denominated short-term tax-exempt bond market. ETF investors can get access to short duration, quality munis with SMB by way of a low expense ratio of 0.20%.
Overall, SMB gives investors access to:
- Tax Exempt Income: Income generally exempt from federal taxes and the Alternative Minimum Tax (AMT).
- Targeted Interest Rate Risk: Designed to track an index of short-duration municipal bonds.
- Quality: Investment-grade index constituents with high overall credit quality.
2021 an Ideal Environment for Munis
The pandemic continues to throw curveballs at the capital markets with heavy doses of volatility. Yet the current climate is ideal for municipal bond strength. Why is that so?
A Central Penn Business Journal article noted the following:
“Has the coronavirus pandemic created an ideal market for municipal bonds? The global financial markets coronavirus rollercoaster ride along with cultural and politic seismic shifts have some investors longing for investment stability. The municipal bond market is an attractive vehicle for those looking for tax advantages, portfolio diversification and contentment with conservative performance.”
“From an investor standpoint, it’s a good thing,” said Brandon Adams, senior portfolio manager at RKL Wealth Management.
Furthermore, “Adams said municipal bonds – part of the fixed income market appeal to a particular type of investor, mainly retail and individual investors. They are rarely purchased on the institutional level, or by pension funds.”
“The ‘Coronavirus Crash’, during which the global stock market sustained its most perilous dive since the Wall Street Stock Market Crash of the 1929 is generally blamed for the ‘COVID-19 Recession’ and partly credited with a second look at the municipal or ‘muni’ bond market.”
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