It’s hard to see the words “municipal bonds” and get excited, but times may be changing. With fixed income wrapping up a strong year, many investors may also be looking to refresh portfolios and adjust for tax impacts ahead of 2025. The recent webinar “Why Munis Matter” addressed the role munis can play in portfolios, especially in the current market environment. They could prove helpful to investors revisiting their fixed income allocation.
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The webinar, hosted by VettaFi’s Head of Research Todd Rosenbluth and Head of Sector & Industry Research Roxanna Islam, included thoughts from Brown Brothers Harriman Principal and Portfolio Manager Gregory Steier and SS&C ALPS Advisors Chief ETF Strategist Paul Baiocchi. The quartet discussed the muni outlook ahead of 2025 and options that investors have therein.
For Steier especially, the excitement was palpable: “I’ve been doing this for a very long time. I can’t remember a more exciting time to be in munis.”
He explained that elevated yields over the last year, along with record issue municipal issuance is driving that excitement. With credit at a “high-water mark,” Steier added, risks in the sector remain relatively low.
“It’s not often that you can say with a straight face that a high-quality muni portfolio may out-earn equities, but that’s the situation we see ahead for 2025,” he noted.
For Steier, munis satisfy four important roles: liquidity, income, diversification, and tax efficiency. That income could appeal to those nearing retirement, while the diversification can appeal to all investors. With the U.S. fixed income market shifting as rates drop, but uncertainty lingering, those factors may compel new interest. Looking to taxes, specifically, Steier explained to viewers that a national munis focus can compensate investors relative to state muni bonds — even in states like California.
How, then, might investors get exposure to munis? The ALPS Intermediate Municipal Bond ETF (MNBD) provides a route therein. The fund actively invests in intermediate muni bonds, charging 50 basis points to do so. The active muni ETF looks for muni bonds exempt from federal income tax. Specifically, it uses a bottom-up investment approach to invest in bonds in the top four credit rating categories. It invests in fixed, variable, or floating-rate muni securities.
That active approach has helped MNBD return 9.89% over the last one-year period, per SS&C ALPS Advisors data. That has beaten its benchmark, the Bloomberg Municipal Bond 1-15 Year Blend Index, over that time frame.
Together, those factors may speak to the case to invest in munis via a fund like MNBD. With many investors in cash looking for a place to invest, the solid yields in a fund like MNBD could offer a potent starting point in the new year.
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