A Muni ETF for Tax-Exempt Income, Improved Risk Management

As we consider ways to diversify a fixed-income portfolio, an investor may look to an actively managed municipal bond exchange traded fund backed by comprehensive risk/reward analysis to identify securities that may perform well over market cycles.

Specifically, the JPMorgan Ultra-Short Municipal ETF (Cboe: JMST) can help investors go down the yield curve and better manage risks. The JPMorgan Ultra-Short Municipal ETF tries to generate a high level of current income exempt from federal income tax as is consistent with the relative stability of principal. The portfolio primarily consists of investment-grade fixed, variable, and floating-rate municipal securities exempt from federal income taxes. JMST has a 0.83% 30-day SEC yield and an average duration of 0.92 years.

“We continue to manage the strategy conservatively using our investment process built on consistency of style. Security selection will remain the driver of performance over macroeconomic bets. We employ a bottom-up, value-driven investment approach,” according to J.P. Morgan Asset Management. “The dislocation in markets will continue to present attractive opportunities in the short end of the market, and we look to add strong, research-recommended credits at attractive yields.”

Diversifying across the fixed income market may help investors with improved income exposure and lower volatility. Due to its low correlation to traditional fixed income sectors, core complements like JMST may diminish the overall volatility in a fixed-income portfolio.

The JPMorgan Ultra-Short Municipal ETF includes a focus on variable-rate demand notes (VRDNs), which do not suffer from price decreases as rates rise.

“VRDNs and cash holdings will continue to be a key part of our portfolio as they provide stable liquidity. We believe we will continue to capture higher yields as we evaluate credits to add to our portfolio,” according to J.P. Morgan Asset Management.

The portfolio’s quality breakdown includes AAA 22.6%, AA 44.4%, A 17.7%, BBB 4.3%, BB 0.5%, Tier 1 2.9% and not rated 7.7%.

For more information on the fixed-income market, visit our bond ETFs category.