High-net-worth investors like muni bonds for their tax exemptions.
Although defaults are historically rare in the muni bond market, holding a broad-based ETF provides “the benefit of diversification to help protect investors from the idiosyncratic risk of holding any individual issue,” says Morningstar analyst Timothy Strauts in a report on iShares S&P National Municipal Bond Fund (NYSEArca: MUB).
“The credit issues of municipals are not an impending panic that will hit the market all at once like the Greek sovereign-debt crisis. Each municipality has its own unique and varied issues that will be confronted on their own schedule. Owning a diversified fund like MUB will help smooth out any issues an individual issuer runs into,” he adds. “Normally a very docile sector of the market, muni bonds have increased risk because of the budget issues at state and local governments.”
iShares S&P National Municipal Bond Fund
