The number of wealthy individuals is on the rise, increasing the need for fixed income options that will minimize their tax burden. One of those ways includes municipal bonds. And those can be available with actively managed TFs for increased flexibility.
A report by Markets Insider highlighted the growing population among the wealthy. And that could spur a demand for municipal bonds that offer tax-free income options.
“Adjusted-gross-income in the US spiked 17.7% to $2.2 trillion in 2021 tax year, the highest year-over-year surge in two decades, following the continued recovery from the pandemic and a stronger labor market, according to an analysis from Western Asset this week based on recent IRS data,” Markets Insider explained.
Additionally, rate cuts could also drive down yields. That would push municipal bond prices higher in the process. This, in addition to muni bond income, will add price appreciation. Meanwhile, fixed income investors may want to take advantage of high yields now before rate cuts eventually occur.
“Growing net worth makes muni bonds more attractive as a tax shield, especially as investors anticipate the first rate cut on the horizon from the Federal Reserve, which would push bond values up,” Markets Insider added.
Furthermore, exposure to muni bonds isn’t relegated to just the wealthy. Muni debt is also lauded for its higher degree of credit quality versus other debt associated with elevated default risks.
An Active ETF Option
If investors are keen on adding munis to their bond portfolios, it may appear daunting given the vast number of options available. They don’t have to fret when considering ETFs that can provide all-encompassing muni exposure in one fund like the ALPS Intermediate Municipal Bond ETF (MNBD ).
An active management strategy is inherently built into the fund. So MNBD can offer easy ingress to this complex corner of the bond market. Active management puts the fund in the hands of experienced portfolio managers who know how to deftly navigate the municipal bond market that offers a wealth of opportunities.
MNBD seeks to actively achieve its investment objective by applying bottom-up fundamental analysis and investing in a long-term, tax-aware manner. The fund aims to actively implement the strategy by investing primarily in a diversified portfolio of investment-grade municipal bonds. As of 1/31/24, the ETF’s 30-day SEC yield is 3.34% (unsubsidized). Its trailing 12-month yield is 3.35% (as of February 29).
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