With its tax advantages and relative stability, municipal bonds should continue to outperform in the tricky fixed income environment, all to the benefit of the VanEck Vectors CEF Municipal Income ETF (XMPT).

With its 0.40% expense ratio, XMPT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the S-Network Municipal Bond Closed-End Fund Index. The fund normally invests at least 80% of its total assets in investments from which the income is exempt from U.S. federal income tax (other than federal alternative minimum tax).

It normally invests at least 80% of its total assets in securities of issuers that comprise the fund’s benchmark index. The CEFMX Index is comprised of shares of U.S.-listed closed-end funds.

“XMPT features impressive diversity of exposure, and also offers investors a way to gain access to some of the world’s most successful muni bond managers through a single ticker,” an ETF Database analysis said. “Moreover, because the methodology is designed to overweight CEFs trading at a discount to their NAV, this product may be able to deliver attractive current returns.”

“XMPT will be most appealing to investors in a higher tax bracket given the nature of the underlying holdings,” the analysis added further. “This ETF can be used in a number of different ways; it could have appeal as a tactical tool for establishing short term exposure to this segment of the bond market, and could also be useful as a longer-term core fixed income holding.”

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The Value of a Municipal Bond Play

As mentioned, XMPT can thrive as a short-term or long-term bond holding as part of a fixed income portfolio. Municipal bonds can still offer a value play for investors looking to get into state and local debt in the current low-yield environment.

According to a recent ThinkAdvisor article, “the municipal bond market is having a very good year, and its outperformance will likely continue. Year-to-date through May 17, the Bloomberg Barclays Municipal Bond Index is up 0.51%.”

“This  may not seem that great, but it far outpaces the performance of the Bloomberg Barclays Aggregate Bond Index, down 2.7% so far in 2021, and the Bloomberg Barclays Investment Grade Bond Index, off 3.55%, according to Cooper Howard, director of fixed income strategy for the Schwab Center for Financial Research,” the article added.

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