The muni bond market includes over 50,000 issuers and a wide range of bond types such as school district bonds and revenue bonds linked to airports or housing authorities. This diversity offers investors many options to fit different risk and return profiles. Municipal bonds also provide federally tax-free income, which is especially valuable in today’s environment with higher tax rates and interest rate fluctuations. Additionally, munis tend to be resilient when interest rates rise and offer strong diversification benefits to balance equity portfolios.
Strategies like the one behind the ALPS Intermediate Municipal Bond ETF (MNBD ) highlight the potential benefits of thinking beyond mainstream muni market preferences, leveraging less crowded areas to generate strong risk-adjusted returns.
Spotlight on MNBD’s Approach
Managed by Greg Steer and his team of experienced portfolio managers, MNDB uses a bottom-up, valuation-driven process focused on risk-adjusted returns rather than chasing popular bond segments. The strategy emphasizes finding attractively priced bonds that are not popular with most investors, balancing longer duration zero coupon bonds with floating rate notes to manage interest rate risk, selecting high-quality revenue bonds that offer reliable income and strong credit profiles and maintaining liquidity reserves to stay flexible in volatile markets.
This approach helps MNBD avoid crowded trades, manage risk effectively, and deliver monthly tax-free income with relatively low correlation to the stock market.
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Why Now for Muni Bond ETFs?
With unusual yield curve behavior in the muni market such as an inversion in the middle maturities, holding cash and short-term, high-quality securities can actually pay investors to be patient. This environment amplifies the value of a nimble strategy that can move between sectors and structures efficiently.
Navigating Market Conditions
One unique aspect of MNBD’s strategy is investing in delayed delivery bonds. These bonds settle several months after issuance, allowing issuers to lock in favorable rates while managing refinancing rules. Investors receive a price discount upfront, which translates into additional yield after settlement. Though these bonds are less common, they add another way for skilled managers to enhance returns.
Because some of these bonds are less liquid, MNBD emphasizes quality and a long-term view. The team is comfortable holding bonds to maturity and keeps adequate liquid reserves to maintain flexibility.
For investors looking for municipal bond exposure with a focus on strong risk-adjusted returns, MNBD offers an interesting solution worth exploring.
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