Fixed-income assets have stumbled this year, but bond investors may still find value in municipal debt and related muni ETFs.
Michael Cohick, Senior Product Manager for VanEck, said most fixed-income investments have struggled to offer investors positive performance so far in 2018.
“However, the municipal asset class has been one of the bright spots, and high-yield munis, in particular, have been notable,” Cohick said in the video posted below. “Based on recent flow data, it appears, once again, investors are taking note of this important, diversifying asset class.”
The munis market may enjoy more favorable fundamental supply and demand dynamics than other fixed-income assets.
Favorable Supply, Demand for Muni Bonds
“Issuance of new municipal bonds year-to-date is down some 15 to 20 percent from year ago. Demand, the other side of the equation, has been pretty constant, and in fact, the months of May and June are great months for re-investment in the municipal space,” James Colby, Portfolio Manager for VanEck Vectors non-taxable Fixed Income ETFs and Senior Municipal Strategist, said in a video.
Potential investors interested in gaining exposure to the munis segment have a number of options available to them. For example, the VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEArca: ITM) provides broad exposure to investment-grade intermediate duration municipal bonds. ITM has a 0.24% expense ratio, a 2.50% 30-day SEC yield or 3.97% taxable equivalent 30-day SEC yield for those in the highest income bracket, and a 6.88 year duration.
Additionally, something like the VanEck Vectors High Yield Municipal Index ETF (NYSEArca: HYD) generates more attractive yields to somewhat cushion any potential pullbacks in the fixed-income space. HYD has a 0.35% expense ratio, a 3.32% 30-day SEC yield or a 5.27% taxable equivalent yield, and a 7.38 year duration.