Active Could Be Ideal for Muni Bond Exposure in 2024

The start to 2024 by municipal bonds hasn’t been anything to boast about. Neither has it been alarmingly bad. Therefore, It could be inferred active management might be the way to pursue muni bond exposure this year.

The ALPS Intermediate Municipal Bond ETF (MNBD) is among the exchange traded funds that bring active management to the municipal bond space. Less than four months is an admittedly short time frame in which to gauge the performance of any muni bond strategy. But MNBD is slightly outpacing the ICE AMT-Free US National Municipal Index. That could signal validity in the pairing of active management and debt issued by state and local governments.

Another reason MNBD could be worth examining by income investors over the near term is that recent municipal bond sales confirm professional market participants are renewing their affinity for this corner of the bond market. Issuance increased in the first quarter. And in some cases, muni bond sales were oversubscribed.

Patience Could Be Rewarded With Muni Bond ETF MNBD

Advisors and investors evaluating MNBD might want to remember the virtues of being patient. As noted by BlackRock, April is historically a rough month in terms of muni bond performance issuance. That’s because issuance is often high and investors often sell out of previously established positions to pay tax bills.

“Amid this backdrop, we remain patient, but would view any material cheapening as an opportunity to put money to work at more attractive levels,” according to the asset manager.

MNBD offers some advantages relative to passively managed rivals. The fund offers tax-free income via an asset class that’s lowly correlated to equities. It also currently allocates 85.61% of its portfolio to revenue bonds. Those usually feature higher yields than general obligation debt.

The ETF also has the flexibility to identify credit and duration opportunities not often featured in standard muni debt indexes. The flexibility afforded by active management could be relevant at a time when a mixture of defense and offense could serve muni investors well.

“We prefer single-A rated [credits. But we] think high yield offers an attractive risk-reward opportunity, given favorable structures and the ability to generate alpha through security selection,” added BlackRock.

MNBD has a 30-day SEC yield of 3.44% and an annual fee of 0.50%.

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