It’s Not All Bad for Muni Bond ETFs

Credit quality is not a concern with most muni ETFs and that is certainly the case with SHM as over 99% of the fund’s holdings are rated either AAA or AA. Despite fewer concerns about credit quality, “the 10-year Treasury yield rose sharply in 2013 amid expectations that the Federal Reserve would begin to taper its bond buying program (which is occurring this month). We think the issue of potentially higher rates remains a concern for 2014,” said S&P Capital IQ.

The research firm also has marketweight ratings on the $226.3 million Market Vectors-Short Municipal ETF (NYSEArca: SMB). SMB’s modified duration is less than 3.2 years  and nearly a third of the fund’s 251 are state general obligation bonds. Issues from New York, Illinois and California combine for nearly 36% of the fund’s weight.

The iShares Short Term National AMT-Free Muni Bond ETF (NYSEArca: SUB) also garnered a marketweight rating from S&P. That $812.9 million ETF has 756 holdings and an effective duration of just two years, according to iShares data. SUB is down 0.2% over the past year.  California and New York issues combine for over a third of SUB’s weight.

SPDR Nuveen Barclays Short Term Municipal Bond ETF