Muni bond ETFs are popular as they can offer reliable income, low credit risk, and exemption from federal taxes on the income paid by the bond.
Furthermore, muni bond ETFs can solve investors’ need for yield and tax-free investment offerings. The after-tax return on muni bonds held in taxable accounts is attractive compared to taxable bonds. This may be particularly attractive for investors in high tax brackets.
See more: Fidelity Adds 2 Muni Bond ETFs to Fixed Income Lineup
Fixed income ETFs are gaining prevalence in investor portfolios. Notably, the number of portfolios that utilize fixed income ETFs increased by 6% in the past year, according to Fidelity Investment’s Portfolio Construction Insights. This underscores growing demand in the fixed income ETF market.
Investors looking for tax shelter and attractive returns may want to consider muni bond ETFs with high credit quality and intermediate durations. Fidelity recently launched the Fidelity Municipal Bond Opportunities ETF (FMUB) and the Fidelity Systematic Municipal Bond Index ETF (FMUN), its first muni bond ETFs.
Under the Hood of Fidelity’s Muni Bond ETFs
FMUN seeks to offer a high current yield exempt from federal income tax. The ETF does this by investing in muni securities whose interest is exempt from federal income tax.
The ETF is based on the Fidelity Systematic U.S. Municipal Bond Index by normally investing 80% of its assets in securities included in the Index.
See more: Active Fixed Income ETFs Continue to See Strong Interest
FMUB also seeks to provide high current yield exempt from federal income tax, but growth of capital may be considered.
Additionally, the ETF will invest in muni securities with interest exempt from federal income tax. The majority of holdings are investment-grade; however, it may invest up to 30% of its assets in lower-quality debt securities. This enables the fund to potentially generate a higher yield than FMUN.
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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