On the latest ETF 360, Kirsten Chang spoke to John Lawlor, managing director, portfolio manager/trader from MacKay Shields about the state of munis. Additionally, they discussed the NYLI MacKay Muni Intermediate ETF (MMIT ).
Got My Mind on My Munis & My Munis on My Mind
Municipal bonds have been on a roller coaster ride, according to Chang. 2025 opened with a massive sell-off that sent prices to nearly the lowest they’ve been in 15 years. But with low prices comes opportunity.
“They underperformed nearly every fixed income asset class to date,” explained Lawlor. “A lot of that was driven by the uncertainty surrounding the new legislation coming out of the One Big Beautiful Bill and the tax-exempt status of munis.” This caused prices to dive and gave savvy investors an incredible value.
“When you take a step back and look at taxable equivalent yields you can capture in the municipal marketplace, you are looking at north of 8% for the average investor,” he added. “That’s a really attractive relative value opportunity.”
More to Munis Than Meets the Eye
Munis are seen as a safe, reliable income generator. However, there’s more to them than that, according to Lawlor.
“Investors should really think about how they can generate alpha out of their muni portfolio,” he shared. Typically, investors are drawn to munis for the tax-exempt yield.
“What a lot of investors leave on the table is that opportunity for total return,” Lawlor noted. By focusing on credit research, curve positioning, and sector rotation, MacKay Shields’ active approach provides numerous levers to pull to unlock alpha.
Why MMIT Focuses on Intermediate Duration
Chang asked Lawlor about MMIT’s focus on intermediate duration. Accordingly, Lawlor responded, “You look at an intermediate bond portfolio, and that’s going to mute some of that interest rate volatility for you.” A five-year duration is going to have less volatility than a 30-year bond. “You can also capture some really attractive income,” he added.
How to Think About Munis in Your Portfolio
Munis can be a flexible component in a portfolio. They can be used as a core allocation in the asset class, according to Lawlor, but they’ll also get you diversification and income. They can be deployed tactically, given interest rate volatility.
“Chances are, most retail investors or individual investors are underweight munis, given the run-up we’ve seen in the equity market over the last three years,” he explained.
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