2025 is right around the corner. Advisors and investors are evaluating which asset classes could deliver the goods in the new year. On the fixed income side of the ledger, municipal bonds and the related exchange traded funds could be ideas to consider.
Market participants who don’t want the burden of selecting individual issues can lean into ETFs such as the ALPS Intermediate Municipal Bond ETF (MNBD). MNBD is actively managed, proving there are benefits to marrying active management and municipal bonds. The ALPS ETF is beating some of the largest passively managed funds in the category this year.
Of course, that performance is about to become past performance. This means fixed income investors need to assess the 2025 outlook for municipal bonds and ETFs such as MNBD. Fortunately, some experts believe municipal bonds could shine in 2025.
New Year Could Bring Good Vibes for Munis
Municipal bonds are performing well to close out 2025, despite a recent spate of issuance. ETFs play a pivotal role in absorbing supply. Speaking of muni bond supply, experts expect issuance to decline in early 2025. This could drive upside for the asset class.
“Looking ahead to the remainder of this year and heading into 2025, we believe municipal bonds are poised to find a supportive backdrop from a technical perspective,” noted Goldman Sachs Asset Management (GSAM). “We expect the net supply picture to turn more favorable for investors into year-end, with net supply projections of -$6 billion in November and -$14 billion in December.”
Munis could also thrive in 2025 because after-tax yields are expected to remain attractive. As GSAM pointed out, the current yield on a broad basket of investment-grade municipal bonds is 3.6%. That works out to be an enticing 6.1% on after tax basis for folks in the highest tax brackets.
“We believe these compelling after-tax yields should continue to lead to strong investor demand into the asset class across mutual funds, ETFs and separately managed accounts,” said GSAM. “With these factors in mind, we believe this may be an opportune time for long-term investors to capitalize on attractive after-tax income and supportive technicals within the municipal market.”
The money manager also advocates for seeking out credit opportunities in muni space. MNBD makes this objective easier because the actively-managed ETF eliminates the need for investors to select individual issues.
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