Show Me the Muni(s): One Way to Better Bond Yields

The rising popularity of municipal bonds has been readily apparent in fixed income flows, but for those who can’t get enough, there’s the VanEck Vectors Muni Allocation ETF (MAAX) to consider.

The fund seeks maximum long-term after-tax return, consisting of capital appreciation and income generally exempt from federal income tax. The fund normally invests at least 80% of its total assets in investments the income from which is exempt from U.S. federal income tax (other than AMT).

MAAX is an actively managed ETF that invests, under normal circumstances, primarily in VanEck Vectors ETFs that are registered under the applicable federal securities laws and that invest in publicly traded municipal bonds that cover the U.S. dollar-denominated investment grade and below investment grade tax-exempt bond market.

MAAX gives investors:

  1. A guided allocation approach: Allocates among VanEck municipal bond ETFs based on interest rate and credit opportunities.
  2. Maximum total return and income: Performance-oriented strategy offers the potential for capital appreciation plus tax-exempt income.
  3. Active management: Process uses technical and macroeconomic indicators to guide credit and duration exposure, seeking to avoid market risks when appropriate.

MAAX Chart

Munis to the ‘MAAX’

In a low yield environment, fixed income investors are looking for ways to to ratchet up their income. In certain cases, munis can offer higher yields.

“Municipal bonds can be a great source of tax-free income when they are used correctly,” said Steven Merrell in a Monterey Herald article. “However, whether or not muni bonds make sense for you depends on several things, including your overall investment objectives and your personal marginal tax rate.”

“Before you buy muni bonds, consider carefully if bonds generally should be part of your portfolio,” Merrell added. “Bonds might fit for several reasons. First, bonds can reduce portfolio volatility. Bond price volatility is typically much less than the volatility of stock prices. In addition, bond prices usually exhibit low correlation with the movement of stock prices.”

These bonds can also help protect the rest of a portfolio.

“Finally, bonds give you a more senior claim on the assets of the issuing company than you get if you own the company’s stock,” Merrell added. “Under normal circumstances, this is no big deal. However, in periods of economic stress, the added protection can make a huge difference in the performance of your investment.”

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