Municipal bond exposure gives access to government debt that investors were not able to prior to the advent of more dynamic investment vehicles like the exchange-traded fund (ETF). Now, there are even more strategized funds that can take advantage of the short end of the yield curve in municipal bonds with the iShares Short Maturity Municipal Bond ETF (MEAR).

By using an active management style, MEAR seeks to maximize tax-free current income. The fund normally invests at least 80% of its net assets in municipal securities such that the interest on each bond is exempt from U.S. federal income taxes and the federal alternative minimum tax.

MEAR primarily invests in U.S. dollar-denominated investment-grade short-term fixed- and floating-rate municipal securities with remaining maturities of five years or less, such as municipal bonds, municipal notes and variable rate demand obligations, as well as money market instruments and registered investment companies.

MEAR offers investors the following benefits:

  1. Seeks to maximize tax-free income through diversified exposure to short-term municipal bonds
  2. Put cash to work in a low yield environment, while seeking to reduce both taxes and interest rate risk
  3. Actively managed by the municipal bond team at BlackRock, one of the largest municipal bond managers in the world.

MEAR Chart

MEAR data by YCharts

Passive Municipal Bond Options

For investors still wanting municipal bond exposure, but don’t want an actively managed fund option, here are a couple of passive fund options:

  1. iShares National Muni Bond ETF (NYSEArca: MUB): seeks to track the investment results of the S&P National AMT-Free Municipal Bond IndexTM. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The index measures the performance of the investment-grade segment of the U.S. municipal bond market.
  2. SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF (NYSEArca: SHM): seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays Managed Money Municipal Short Term Index. The fund invests most of its total assets in the securities comprising the index and in securities that the Sub-Adviser determines have economic characteristics that are substantially identical to the economic characteristics of the securities that comprise the index. The index tracks the short-term tax exempt municipal bond market and provides income that is exempt from federal income taxes.

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