Which ETFs Could Benefit from Tax Hikes?

For investors still wanting municipal bond exposure, but don’t want an actively managed fund option, here are a is one option: iShares National Muni Bond ETF (MUB A)—seeks to track the investment results of the S&P National AMT-Free Municipal Bond IndexTM. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The index measures the performance of the investment-grade segment of the U.S. municipal bond market.

“The low-rate environment is great for the fixed-income market. Moreover, muni bonds are known for yielding higher than treasuries,” a Nasdaq article said. “With the Democratic candidate having solid chances of winning, muni bonds may see great days ahead as these bonds are exempt from federal taxes, and most state and local taxes.”

“Biden would also repeal the $10,000 cap on the state and local tax deduction, a change from 2017 that increased taxes on high-income households, particularly in states such as New York, New Jersey and California,” the article added.

Another fund to consider is the SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF (SHM A-). SHM seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays Managed Money Municipal Short Term Index.

The fund invests most of its total assets in the securities comprising the index and in securities that the Sub-Adviser determines have economic characteristics that are substantially identical to the economic characteristics of the securities that comprise the index. The index tracks the short-term tax exempt municipal bond market and provides income that is exempt from federal income taxes.

An actively-managed fund to consider is the iShares Short Maturity Municipal Bond ETF (MEAR B-). By using an active management style, MEAR seeks to maximize tax-free current income.

MEAR primarily invests in U.S. dollar-denominated investment-grade short-term fixed- and floating-rate municipal securities with remaining maturities of five years or less, such as municipal bonds, municipal notes and variable rate demand obligations, as well as money market instruments and registered investment companies.

MEAR offers investors the following benefits:

1. Seeks to maximize tax-free income through diversified exposure to short-term municipal bonds
2. Put cash to work in a low yield environment, while seeking to reduce both taxes and interest rate risk
3. Actively managed by the municipal bond team at BlackRock, one of the largest municipal bond managers in the world.