Fixed-income investors seeking diversified yield have looked to municipal bonds, and within that segment, an infrastructure revenue bond-related ETF stands out.
The Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU) has gained 5.9% year-to-date, compared to the 4.3% gain in the broader investment-grade municipal bond market. RVNU also generated a 2.43% 12-month yield.
In the wake of the damages inflicted by the hurricane season, rebuilding efforts should help bolster economic activity, and the munis market could react favorably to the build out.
“The effects of Hurricane/Tropical Storm Harvey are unlikely to: 1) interrupt national municipal market outperformance; or 2) create a material break in strong southeastern Texas growth trends and/or related issuer credit quality improvements,” Matt Fabian of Municipal MarketAnalytics, told Barron’s. “To the extent local bonds cheapen by more than a few points, they will reasonably present value to both income and performance-oriented investors (meaning that, in this market, any depressed prices probably won’t last long).”
There are some fears that municipalities may default on debt obligations. However, the revenue-backed munis segment is tied to the success of projects they are funding.
RVNU is the only U.S.-listed ETF that tracks long-term, investment-grade U.S. tax-exempt munis with dedicated revenue streams. The underlying index is intended to track federal tax-exempt municipal bonds that have been issued with the intention of funding, state and local infrastructure projects such as water and sewer systems, public power systems, toll roads, bridges, tunnels, and many other public use projects. The index will attempt to only hold those bonds issued by state and local municipalities where the interest and principal repayments are generated from dedicated revenue sources.
These revenue issuers typically carry less risk as compared to general obligation issuers. The debt issues come with dedicated revenue streams or essential purpose bonds that will receive steady payments in any economic environment. For instance, people will still pay electric and water bills no matter what.
For more information on the munis market, visit our municipal bonds category.