Municipal bonds could give fixed income investors the higher yields they’re looking for. The VanEck Vectors Intermediate Muni ETF (ITM) is one place to start.

In the dynamic shell of an ETF wrapper, investors can also grab municipal bond exposure without having to actually purchase individual state and local debt issues. With the trade ability of a share of stock, fixed income investors can quickly get in and out of positions if they so please.

ITM seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays AMT-Free Intermediate Continuous Municipal Index. The fund normally invests at least 80% of its total assets in fixed income securities that comprise the index. The index is comprised of publicly traded municipal bonds that cover the U.S. dollar denominated intermediate term tax-exempt bond market.

ITM gives investors:

  • Tax Exempt Income: Income generally exempt from federal taxes and the Alternative Minimum Tax (AMT)
  • Targeted Interest Rate Risk: Designed to track an index of intermediate-duration municipal bonds
  • Quality: Investment-grade index constituents with high overall credit quality

ITM Chart

Broad Exposure, but Hold the Risk

When compared to their corporate counterparts, municipal bonds are less likely to default, given that their debt is backed up by state or local government. ITM gives investors broad exposure to the muni market while offering the peace of mind that a state or company won’t go out of business the same way a company could.

With longer duration debt in its holdings and broad array of debt issues, ITM is ideal for investors looking to diversify their current debt portfolios. This muni exposure comes in at a low expense ratio of 0.24%.

“This particular fund targets munis that mostly mature between six and 17 years from now, giving the fund both a moderate risk and current income profile,” an ETF Database analysis suggested. “As a result ITM is a solid choice for investors seeking broad exposure to the muni market but with moderate levels of risk.”

“The fund still has impressive levels of diversification– holding over 375 securities– and a below average expense ratio, making it a quality choice for a building block of portfolios, especially for those seeking to keep costs down but are unwilling to look at total market funds or those that target the short or long end of the curve,” the analysis added further.

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