Municipal bonds and the related exchange traded funds are popular with conservative, income-seeking investors and those looking for some tax-advantaged investments.
Munis also help diversify fixed-income portfolios. Investors who typically follow the Barclays U.S. Aggregate Bond Index will not have municipal bond exposure, so a muni bond ETF can complement core fixed-income positions.
Importantly, recent changes to U.S. tax laws do not diminish the allure of muni bonds for income investors. Options to consider among municipal bond ETFs include the VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEArca: ITM).
“When policymakers introduced them in 1913, they wanted to make sure investors were amply incentivized to participate. To that end, the decision was made to reward muni investors with tax-free income at the federal level and, in many cases, at the state and local levels,” according to ETF Daily News. “For residents of high-tax states such as California, New York, Oregon and others, this feature should be especially appealing.”
Many muni investors feared that President Donald Trump’s big plans for an infrastructure revival would inundate the market with a new supply of municipal debt issuance.
Many were also concerned that Trump’s plans to lower income taxes would weaken the appeal of tax-exempt munis and that the president’s pro-growth agenda would push the Federal Reserve to hike interest rates sooner and faster.