Fixed income ETFs, particularly those chock full of lower-risk bonds, including Treasuries and municipals, are all the rage these days amid equity market calamity.
Focusing on the municipal angle for a moment, not only do those bonds trim volatility and boost income, but they offer tax advantages, increasingly the allure of ETFs such as the VanEck Vectors Municipal Allocation ETF (Cboe: MAAX).
MAAX, which launched last year, is based off a proprietary model that incorporates momentum, along with both duration and credit risk indicators, to tactically allocate among selected VanEck Vectors Municipal Bond ETFs, which covers the full range of the risk/return spectrum in the muni market and includes five VanEck Vectors Municipal Bond ETF options.
“Some of the best funds for tax breaks can be found among ETF, index fund and even traditional active mutual funds. However, low turnover makes ETFs and passive index funds solid bets for investors on the prowl for tax efficiency,” reports InvestorPlace.
Since muni bond interest is exempt from federal taxes, muni ETFs are a good way for investors seeking tax-exempt income, especially those in higher tax brackets. Due to its tax-exempt status, the asset category is also best utilized in taxable accounts. Current risk trends indicate it could be time to consider MAAX.
“MAAX is an intriguing muni strategy because it holds four other VanEck funds, meaning it provides exposure to over 5,000 municipal bonds of varying credit quality, maturities, and yield,” according to InvestorPlace.
Yields on munis have been steadily falling with bond prices rising even before the coronavirus hubbub. After the 2017 tax law changes, demand for tax-exempt munis became more attractive in response to caps in the federal deduction for state and local taxes, especially among more high-tax states. The tax law also diminished supply due to new limits on when governments can issue tax-exempt debt.
Municipal debt and bond-related ETFs have been used as a relatively stable fixed-income stream for many investment portfolios. MAAX yields over 3%, well north of what investors get on 10-year Treasuries.
“While MAAX has the flexibility to move in and out of various VanEck municipal bond offerings, turnover is relatively low as the fund’s primary objective is to long-term total return. MAAX currently addresses longer and shorter duration high-yield munis as well as investment-grade fare in the long- and medium-term duration categories,” according to InvestorPlace.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.