Sean Edkins, Director and ETF RVP for Deutsche Asset & Wealth Management, explains that the ETF tracks bonds that fund 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 where the interest and principal repayments are generated from dedicated revenue sources.
Municipal bond investors can enjoy attractive yields, especially those who are in higher income brackets. After the tax hikes in 2013, investors in the top bracket generated a 6.18% tax-equivalent yield in 2013, compared to a 5.38% tax-equivalent yield in 2012, on muni bonds with an average 3.5% yield.
Furthermore, muni investors offer attractive diversification benefits, showing a low correlation to equities and other fixed-income assets.
“Municipal bonds have historically provided attractive risk/return characteristics, particularly when tax benefits are considered,” Blair added.
According to a recent survey, many advisors are concerned about rate risk ahead. Christina M. Wagner, President of EagleView Capital, though, argues that investors are better served sticking to intermediate-term debt, or bonds with a five to seven year duration. Rates remain low as demand and short-term keep a lid on yields.
Financial advisors who are interested in learning more about municipal bonds can listen to the webcast here on demand.