Municipal bond ETFs have been popular on expectations investors will see higher taxes in 2013 if the Bush-era tax cuts are allowed to expire. Also, tax-exempt muni bonds have attractive yields relative to Treasuries for taxable accounts.
“We’re looking at an environment with higher taxes coming — we already know that,” says Chip Norton, Managing Director of Fixed-Income Strategies at Wasmer, Schroeder & Co. “The Bush tax cuts are going to phase out in a few months and investors already know that they’re going to have a higher tax bill and they’re absolutely looking for ways to be more tax efficient in their overall asset allocation.”
ETF Trends Editor Tom Lydon recently spoke with Norton at the Schwab IMPACT conference. Wasmer, Schroeder manages separate accounts, including a taxable municipal fixed-income strategy. [Best Muni Bond ETFs for Yield]
Norton said his firm is seeing increased demand from advisors for muni bonds and ETFs as the fiscal cliff looms. With all this demand, rates have been pushed down “pretty dramatically” in muni bonds following Obama’s re-election.