The combination of portfolio diversification and reliable income remains alive and well with municipal bonds and the related ETFs, indicating 2026 could be an ideal time for investors to consider funds such as the ALPS Intermediate Municipal Bond ETF (MNBD ).
The actively managed MNBD, which turns four years old in May, pieced together an impressive showing in 2025 as highlighted by a year-to-date of more than 5%. That’s far better than the largest ETF in the category, which is basically flat on the year. Under any circumstances, that out-performance is noteworthy, but before investors rush to embrace MNBD in 2026, they should know what they’re getting with municipal bonds.
“Municipal bonds are debt instruments that state and local governments sell to investors in order to finance public projects such as roads, bridges, fire departments, libraries and schools. They offer investors a way to generate tax-free income through interest payments from state and local governments,” notes Nerd Wallet.
MNBD Has Advantages for 2026
Investors often tap individual municipal bonds for tax perks, including deducting accrued interest from federal and state taxes. Still, funds such as MNBD merit consideration for non-taxable accounts, including retirement vehicles. One reason long-term investors should consider an ETF like MNBD is because the fund can enhance diversification in equity-portfolios.
“Diversifying your holdings can help minimize investment risk across your portfolio. Muni bonds, Treasurys, corporate bonds and other fixed-income securities all have different risk and reward profiles. A muni bond usually carries slightly more risk and yields a higher return than a Treasury bond but is typically less risky and often has a lower yield than a corporate bond,” added Nerd Wallet.
Another point in favor of MNBD’s diversification-enhancing properties is the ETF’s status as an intermediate-term fund. Intermediate-term bonds are less correlated to stocks than are long-dated fixed income assets.
There are other highlights with the MNBD story, including its aforementioned status as an active ETF. Municipal bonds are lower risk than stocks and other corners of the fixed income market. However, that doesn’t mean they’re risk free. Some issuers are more financially challenged than others while other jurisdictions may be offering compelling, undiscovered opportunity. The point is, MNBD can react more efficiently to those scenarios than a passive rival.
“Another benefit of investing in bond funds is that bond funds have fund managers who are well-versed in municipal bonds and will monitor the municipalities and related risks for you,” concluded Nerd Wallet.
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