The coronavirus pandemic triggered widespread market volatility, but it also offered an opportunity for active managers to position in attractively priced areas of the market. Fixed-income investors can also turn to actively managed municipal bond exchange traded fund strategies that are better equipped to adapt to changing market conditions.
For instance, New York Life Investments, in partnership with IndexIQ, offers two actively manage muni bond ETFs, including the IQ MacKay Shields Municipal Intermediate ETF (NYSE Arca: MMIT) and the IQ MacKay Shields Municipal Insured ETF (NYSE Arca: MMIN). The two actively managed muni bond strategies could better help investors navigate changing market conditions. MMIT invests primarily in investment-grade municipal bonds. MMIN principally invests in investment-grade municipal bonds covered by an insurance policy guaranteeing the payment of principal and interest.
“The recommendation was to leverage market knowledge and position portfolios based upon the key attributes of each bond held including structure, liquidity profile, rate sensitivity, and credit fundamentals. It was also noted that investor uncertainty in 2020, a presidential election year, over economic sustainability, and stock market performance could lead to volatility. However, based on our belief in improving municipal credit fundamentals and favorable market technicals, we were prepared to be buyers in periods of volatility. During the spring of 2020, the municipal market experienced one of the deepest, swiftest dislocations seen in decades. While we did not foresee the tragic human impact and massive economic slowdown caused by COVID-19, our portfolios were well positioned,” according to a New York Life Investments research note.
MMIT seeks current income exempt from federal income tax. The ETF invests primarily in investment-grade municipal bonds and will also try to enhance total return potential through the subadvisor’s active management approach.
MMIN also seeks current income exempt from federal income tax. Additionally, the ETF principally invests in investment-grade municipal bonds covered by an insurance policy guaranteeing the payment of principal and interest, and will seek to enhance total return potential through the subadvisor’s active management approach.
The two strategies both seek to maintain 100% of assets in investment-grade munis diversified across states and sectors with a duration neutral approach, an expected annual turnover of 20% to 30%, and no leveraged exposure.
The thesis MacKay Municipal Managers employs remains intact and is further solidified by the four core pillars of their investment process, including Disciplined Security Selection or strict credit review standards through all markets remains paramount, particularly during turbulent times. Focus on Liquidity or constructing portfolios that include short-term securities, rated bonds, and bonds with a diverse buyer universe are at the core of every portfolio we manage. Commitment to Diversification or mitigating credit risk through diversification by geography, sector, issuer, credit rating, and yield curve positioning. Lastly, Flexible and Active Approach where market volatility creates either risk or opportunity; the flexibility of portfolios allow the credit research team, traders, and portfolio managers to seek out opportunities during market volatility and dislocations.
For more information on the fixed-income market, visit our bond ETFs category.