Compared to other riskier areas of the bond market, municipal debt has typically been seen as a safe haven for fixed-income investors looking for yield but finding it in the wrong places. However, according to a Wall Street Journal report, the once-safe municipal bond space is starting to get riskier.
Per the WSJ report, the “sale of riskier new bonds, combined with the deterioration of some existing debt, has increased the amount of junk-rated and unrated debt outstanding by 20% since 2012, according to Municipal Market Analytics and the Federal Reserve.”
“It remains a small slice, about 9%, of the $4 trillion muni-bond markets, according to MMA and Fed data,” the report added. “But high-yield municipal funds have attracted more money in the year to August than in any other year on record, drawing $14 billion, according to Refinitiv data going back to 1992.”
Where do investors start when they want this municipal bond exposure? Here are the three top-performing ETFs year-to-date to get going:
- VanEck Vectors AMT-Free Long Municipal Index ETF (BATS: MLN)–up 9.43% YT: seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays AMT-Free Long Continuous Municipal Index. The fund normally invests at least 80% of its total assets in fixed-income securities that comprise the index. The index is comprised of publicly traded municipal bonds that cover the U.S. dollar-denominated long-term tax-exempt bond market.
- Xtrackers Municipal Infrastructure Revenue Bond ETF (NYSEArca: RVNU)–up 9.24%: seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive Municipal Infrastructure Revenue Bond Index (the “underlying index”). The fund will invest at least 80% of its total assets (but typically far more) in instruments that comprise the underlying index. The underlying index is comprised of tax-exempt municipal securities issued by states, cities, counties, districts, their respective agencies, and other tax-exempt issuers.
- Franklin Liberty Municipal Bond ETF (NYSEArca: FLMB)–up 7.91%: seeks a high level of current income that is exempt from federal income taxes. Under normal market conditions, the fund invests at least 80% of its net assets in municipal securities whose interest is free from federal income taxes, including the federal alternative minimum tax. Although the fund tries to invest all of its assets in tax-free securities, it is possible that up to 20% of the fund’s net assets may be in securities that pay interest that may be subject to the federal alternative minimum tax and, although not anticipated, in securities that pay interest subject to other federal or state income taxes.
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