An Aging Population Could Benefit High-Yield Muni ETFs

Municipal bond exchange traded funds have been a stalwart component of many fixed-income portfolios, and the construction of Continuing Care Retirement Communities, or CCRCs, may be a growing segment of the munis space as the baby boomer generation look to their golden years.

CCRCs make up about $34 billion worth of the municipal debt market, with the majority of these debt securities falling into the high-yield/unrated segment, Jim Colby, Portfolio Manager for VanEck, said in a research note.

“We expect this segment of the muni high yield market to continue to grow given the aging population in the U.S. and its increased need for residential healthcare options. In terms of market size, CCRCs are approximately the same size as the tobacco bonds segment within the muni high yield market,” Colby said.

To put this in perspective, the VanEck Vectors High Yield Municipal Index ETF (NYSEArca: HYD) includes an 18.6% tilt toward tobacco and the shorter duration VanEck Vectors Short High-Yield Municipal Index ETF (NYSEArca: SHYD) has a 10.4% position in tobacco.