Municipal debt and bond-related exchange traded funds have been standout performers over the past couple of years. But what can muni bond investors expect for the year ahead?
On the upcoming webcast, Goundhog Day: Will the Muni Market See Its Shadow in 2016?, Lisa Poniewaz, ETF Regional Vice President at Deutsche Asset Management, Ashton P. Goodfield, Co-Head of the Municipal Bond Department and Portfolio Manager for Municipal Bond Mutual Funds at Deutsche Asset Management, and Matthew Forester, Chief Investment Officer of NewSquare Capital, will help outline the current fixed-income market condition and point out some factors that could affect their muni investments.
For instance, with higher tax rates, tax-exempt municipal bonds are more valuable and offer attractive diversification benefits. However, with some cases of public pensions and post-employment benefits ,such as healthcare for public workers, putting pressure on state and municipal finances, some advisors and investors are considering alternatives to general obligation bonds when filling out muni exposure.
Consequently, investors can take a look at the Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU), which seeks to reduce exposure to public pension risk, not avoid or eliminate it, by focusing solely on bonds that fund state and local infrastructure projects.
RVNU’s underlying index is intended to track federal tax-exempt municipal bonds that have been issued with the intention of funding, 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.[related_stories]
Municipalities typically issue revenue bonds to allow cities to avoid hitting a legislated debt limit. Additionally, an agency that runs on tax dollars, like a school, cannot issue revenue bonds since the agency would be unable to pay off the bond using revenues from the project.
RVNU has a yield to worst of 2.95% and a modified duration of 6.40 years.
The muni ETF’s portfolio is filled with investment-grade debt securities, including Aaa 9.3%, Aa 45.5%, A 42.2% and BBB 2.4%.
Financial advisors who are interested in learning more about the municipal bond market can register for the Tuesday, March 30 webcast here.