Fixed income is back, with the Fed’s interest rate hikes stabilizing in a range that offers bonds at appealing yields not seen in years. As investors look to increase their fixed income allocations, one bond type to consider could be tax-free municipal bonds, with one core muni bond ETF to consider being the Avantis Core Municipal Fixed Income ETF (AVMU) from American Century’s Avantis Investors brand.
Charging just 15 basis points, the strategy recently passed the second anniversary of its inception on December 8. Despite its relatively short history to date, it has had a strong 2022, adding $27.5 million in one-year flows, spiking as the year has drawn to a close with $9 million of that total added in just the last month.
AVMU has also ridden the fixed income trend well, not only outperforming its ETF Database Category Average and Factset Segment Average on a YTD basis when those categories were struggling but also outperforming both when returns turned positive over a three-month basis returning 2.7%. The strategy recently surpassed its 200-Day Simple Moving Average (SMA) of $45.71, as well, sitting now at $46.2.
Municipal bonds have the benefit of being supported by cities and towns across the U.S. that are unlikely to renege on their obligations, with municipal bond credit trends proving to be durable – in Q3 2022, upgrades made up 75% of rating revisions with just 25% listed as downgrades.
The core muni bond ETF uses an analytical framework including securities’ expected income and capital appreciation, categorizing securities within the fund’s investment universe into groups based on industry sector, credit rating, duration, country, and currency. AVMU may also engage in securities lending and expects to maintain a weighted average duration within two years of the average duration of this benchmark, the S&P National AMT-Free Municipal Bond index.
Next year poses a lot of complicated questions and challenges for investors, from a possible recession to the Fed’s ongoing interest rate hike campaign. Investors are on the lookout for fixed income, and for those investors looking for municipal bond exposures, AVMU could be a candidate to follow.
For more news, information, and analysis, visit the Core Strategies Channel.