Muni ETF Shows Active Management’s Benefits

December 9th at 11:00am by Tom Lydon

Municipal bond exchange traded funds (ETFs) have gotten smacked around of late, thanks to renewed concerns about state and local debt. But one muni bond ETF has managed to stand head and shoulders above the rest.

PIMCO Intermediate Muni Bond Strategy (NYSEArca: MUNI) is up nearly 5% year-to-date, leaving its peers in the dust and demonstrating the benefits of active management, particularly when it comes to the fixed-income space. It’s also one of the only municipal bond ETFs to be positive (up 2%) in the last year. [Pullback in Munis Just a Blip?]

What’s the secret of MUNI’s success? The answer lies in California’s ailing economy. The fund minimized its positions in the state recently. Currently, debt from the Golden State accounts for just 5% of the fund’s total weight. [How Do Active Muni ETFs Compare?]

The benefit of active management in this case is clear: the active strategy that MUNI has give it the ability to adjust its holdings and their weight according to the perceived risk and credit quality of the debt in California. MUNI makes use of issuer-specific credit analysis in order to pinpoint what bonds it should own, Shishir Nigam explains. This flexibility gives the fund an edge over indexing strategies, especially in tough economic times like these.

For more stories about actively managed ETFs, visit our category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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