BlackRock suggests investors with higher taxes should add munis to garner attractive income yields.
Investors who are more concerned about rate risk can go down the yield curve. For instance, the iShares Short-Term National AMT-Free Muni Bond ETF (NYSEArca: SUB) and SPDR Nuveen Barclays Short Term Municipal Bond ETF (NYSEArca: SHM) come with shorter durations at 1.98 years and 2.87 years, respectively. Duration is a measure of a fund’s sensitivity to changes in the interest rates, and a lower duration translates to a smaller effect on the ETF. However, the lower durations mean lower yields as SUB has a 0.25% 30-day SEC yield or a 0.45% tax equivalent 30-day SEC yield, and SHM has a 0.52% 30-day SEC yield or a 0.93% tax equivalent 30-day SEC yield. [Muni Nation: Second-Quarter Muni Outlook]
Alternatively, investors can juice up yields with something like the Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD), which has a 5.64% 30-day SEC yield or a 9.33% tax equivalent 30-day SEC yield. However, the fund has a longer 10.59 year duration and holds speculative grade debt. [Muni ETFs Outperforming, but Watch Interest Rates]
For more information on munis, visit our municipal bonds category.