A spate of municipal defaults have left some market participants skittish, but investors can consider a revenue-based municipal debt exchange traded fund to hedge potential risks in the muni bond market.
During a webcast on Tuesday Aug. 19 entitled What’s Next for Municipals?, Blair Ridley, Director and Portfolio Manager for Deutsche Asset & Wealth Management, Christina M. Wagner, President of EagleView Capital, and Sean Edkins, Director and ETF RVP for Deutsche Asset & Wealth Management, outline the impact of rising rates and tax-reform proposals that would impact municipal bonds, along with a muni investment option to mitigate default risks.
High-profile bankruptcy filings in Detroit, Michigan and Stockton, California, along with financial problems in Puerto Rico, have raised concerns in the munis space. Specifically, general-obligation bonds, which are backed by credit an the taxing ability of the issuing municipality, are under increased scrutiny as some cities fail to generate enough tax revenue to cover their debt.
Alternatively, investors can consider the db X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU), the first ETF to focus exclusively on revenue bonds.
RVNU’s index is intended to track federal tax-exempt municipal bonds that have been issued with the intention of funding federal, state and local infrastructure projects such as water and sewer systems, public power systems, toll roads, bridges, tunnels, and many other public use projects. The index will attempt to only hold those bonds issued by state and local municipalities where the interest and principal repayments are generated from dedicated revenue sources. [Muni Credit Risk Remains Muted]
By tracking the index, the fund will focus its investments on infrastructure revenue bond holdings that generally have less fluctuation of income, sales and property tax revenue as well as generally less exposure to underfunded pensions and other post-employment benefit obligations.
For more information on munis, visit our municipal bonds category.
Financial advisors who are interested in learning more about U.S. municipal infrastructure revenue bonds can register for the Tuesday, August 18 webcast here.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.