A closed-end fund of funds provides an attractive high-yield alternative to municipal bond exchange traded funds.
The Market Vectors CEF Municipal Income ETF (NYSEArca: XMPT) comes with a 5.71% 30-day SEC yield or a 9.45% taxable equivalent 30-day SEC yield for those in the highest income bracket.
In comparison, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) has a 1.74% 30-day SEC yield or a 4.85% taxable equivalent yield.
Moreover, XMPT has experienced a healthy price appreciation this year, increasing 14.2% year-to-date, whereas MUB is up 7.6%.
XMPT tracks the S-Network Municipal Bond Closed-End Fund Index, which is comprised of U.S. listed closed-end funds that invest in U.S. dollar-denominated, tax-exempt bonds.
A closed-end fund is a publicly traded investment company that raised a certain amount of capital once through an initial public offering. The price of the CEF can fluctuate like any other stock listed on an exchange. However, unlike ETFs, a CEF issues a set number of shares, so the CEF can trade at a high premium or discount to its underlying net asset value.
The Market Vectors offering includes municipal bond CEFs that employ leveraged, unleveraged, high yield and high-yield leveraged municipal bond strategies, writes Reuben Sushman for Seeking Alpha.
Since XMPT is a type of fund-of-funds, the ETF has acquired fund fees and expenses. It’s net expense ratio is 1.65%, significantly higher than the average ETF offering. However, expenses are currently capped at 0.40% until September 1, 2015.
Sushman also points out that the ETF, which only has about $34.2 million in assets under management, has not attracted a lot of investor investor because of the ETF’s lack of diversification. Specifically, Nuveen funds make up eight of the top fifteen CEFs in XMPT’s holdings, or 53% of the ETF.
For more information on CEFs, visit our closed-end funds category.
Max Chen contributed to this article.