There’s been much talk lately about what opportunities can arise in the capital markets should a “blue wave” or Democratic majority take over the White House this November. From clean energy to infrastructure, there are many opportunities in fixed income municipal bond exchange-traded funds (ETFs).
Municipal bond investors will be keeping a close watch on election results, particularly if Democratic hopeful Joe Biden wins the presidency. His vow to raise taxes could give municipal bond ETFs a boost.
“Municipal bond investors have much at stake in this election,” a Financial Advisor article stated. “Financial matters are very much in play as both parties are promoting shifting policy emphasis on taxes, trade, monetary intervention, fiscal legislation, and social justice. The direction our economy and society take as a consequence of this election will long be felt.”
“Most importantly, keep in mind that all other things being equal, increasing federal or state taxes will make tax-exempts more valuable while trade and immigration policies will influence local economic development and expansion or contraction,” the article added. “In the absence of fiscal relief it will become even more challenging to evaluate municipal credits in a timely manner. And don’t lose sight of the fact the Fed will eventually have to adjust monetary policy to account for the aggressive intervention exercised during the pandemic.”
Mortgaging ETF Opportunities
Exchange-traded fund (ETF) investors who sense an opportunity on funds focused on mortgage-backed securities can look to the likes of the iShares MBS ETF (MBB ) and the Vanguard Mortgage-Backed Secs ETF (VMBS ).
MBB seeks to track the investment results of the Bloomberg Barclays U.S. MBS Index. The index measures the performance of investment-grade mortgage-backed pass-through securities issued or guaranteed by U.S. government agencies.
VMBS seeks to track the performance of a market-weighted mortgage-backed securities index. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. MBS Float Adjusted Index.
This index covers U.S. agency mortgage-backed pass-through securities. To be included in the index, pool aggregates must have at least $250 million currently outstanding and a weighted average maturity of at least 1 year. All of the fund’s investments will be selected through the sampling process, and under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.