California municipal bond exchange traded funds look like a stable and reliable source of income as fiscally responsible policies keep the most-indebted state on a path toward further ratings upgrades.
California has limited its borrowing, and state taxes on income and corporate earnings now exceed estimates. For the first two quarters of the year, revenue surpassed Governor Jerry Brown’s 2.1% expectations, reports James Nash for Bloomberg.
Brown has stated that California finished the last fiscal year with a positive cash balance for the first time since 2007. [Frugal Communities Keep Debt Low, Rally in Muni ETFs Going]
“The economy in California is certainly leading the U.S.,” Burt Mulford, a manager of munis at Eagle Asset Management, said in the article. “It’s one of the more volatile states, but we’re very optimistic about California. We continue to see value there.”
The healthier Californian finances has attracted heavier investments, with California muni ETFs outperforming in the space. Year-to-date, the iShares California AMT-Free Muni Bond ETF (NYSEArca: CMF) increased 9.8%, SPDR Nuveen Barclays California Municipal Bond ETF (NYSEArca: CXA) rose 9.2% and PowerShares Insured California Municipal Bond Portfolio (NYSEArca: PWZ) gained 12.8%. In comparison, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), which tracks broad investment-grade munis, is only up 7.4% so far this year.
Looking ahead, a new November ballot initiative is seeking to cushion against revenue swings by redirecting taxes on capital gains for a rainy-day fund used for emergencies.