ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Core Strategies Channel
  2. Munis Could Be Buy-the-Dip Candidates
Core Strategies Channel
Share

Munis Could Be Buy-the-Dip Candidates

Tom LydonMay 04, 2022
2022-05-04

“Scant” is an applicable adjective for describing the amount of fixed income exchange traded funds that are in the green this year, and municipal bond funds are members of the offending group.

Those are the breaks when interest rates rise and bond market participants price in more aggressive tightening by the Federal Reserve, which is happening today. Still, investors shouldn’t be hasty in dismissing funds such as the American Century Diversified Municipal Bond ETF (TAXF B).

Getting down to the heart of the matter, the S&P National AMT-Free Municipal Bond Index is slumping this year, but munis still offer decent income streams, and TAXF’s yield is slightly higher than that of the S&P National AMT-Free Municipal Bond Index. Plus, TAXF’s tax benefits remain relevant.

“The yield to worst for a broad muni index is over 3%. This compares to a tax-equivalent yield of 5.8% for an investor in the top tax brackets. In other words, a fully taxable bond that yields 5.6% would yield the same as a municipal bond that yields 3% for an investor in the top tax bracket,” notes Charles Schwab’s Cooper Howard.

As noted above, the primary reason that municipal bonds and the related ETFs are struggling this year is rising interest rates. Along those lines, TAXF’s duration of 6.12 years puts it in intermediate-term territory, indicating its rough start to 2020 could be a case of overly severe punishment. A third of the fund’s 413 holdings have durations of four years or less.

Adding to the case for TAXF are some metrics indicating that the slide experienced by munis through the first four months of 2022 could be leading to some value opportunities.

“Relative to other fixed income investments, muni yields are attractive, too. One common metric to analyze the relative attractiveness of the muni market is the municipals over bonds (MOB) spread,” adds Howard. “It’s a ratio of the yield on a AAA muni to that of a Treasury before considering the tax benefits that munis offer. Since the start of the year, the MOB spreads for most maturities have been steadily climbing and are now above their five-year averages.”

While munis are sliding this year, the good news for investors is that the weakness isn’t due to credit issues.

“Although prices have fallen, it’s largely due to rising interest rates and not credit concerns. As a result, we believe the risk of defaults in the muni market remains low,” concludes Howard.

Over 71% of TAXF’s components are rated AAA, AA, or A.

For more news, information, and strategy, visit the Core Strategies Channel.

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X