Even safe haven assets are feeling the pangs of the coronavirus-filled capital markets. Take municipal bonds for example–muni bond funds haven’t been immune to the coronavirus contagion, but on the plus side, could be trading well below their market value.
“If we could take all the ETFs in the marketplace and look at their average premiums and discounts, the levels that we’re seeing now are consistent with what we saw back during the [2008] financial crisis,” said Matthew Bartolini, Head of SPDR Americas Research at State Street Global Advisors, in Barron’s.
“With something like high-yield municipal bonds, the discount that we’re seeing reflects some of the lagged nature in the [bonds’] underlying pricing,” Bartolini added. “In a volatile marketplace, there are difficulties in pricing and trading the underlying securities, which will impact the valuation at the end of day—the NAV. The ETF’s market price reflects the price between willing buyers and sellers based on their assessment of the valuation of the underlying bonds, and that’s potentially an indicator of where those bonds should be trading at.”
Where to look to get in on the potential muni price cuts relative to their value? Here are three funds to check out in the municipal bond space:
- VanEck Vectors AMT-Free Long Municipal Index ETF (BATS: MLN): 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 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): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive Municipal Infrastructure Revenue Bond 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): seeks a high level of current income that is exempt from federal income taxes. 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.
US Municipal Bond Mutual Fund and ETF Flows data by YCharts
An Active Alternative in EM
As investors look to other alternatives for safety in the fixed income market, one option is the WisdomTree Emerging Markets Corporate Bond Fund (NasdaqGS: EMCB), which looks to bond markets abroad. EMCB seeks to provide a high level of total return consisting of both income and capital appreciation through investments in the debt of emerging markets corporate issuers.
Fund facts:
- Actively managed fixed income portfolio investing in globally operating companies, headquartered in Emerging Markets, issuing debt in USD offers attractive income and total return without currency risk
- Disciplined investment process by Voya Investment Management Co., LLC in an ETF structure
- Use to help increase portfolio yield as an alternative to US High Yield with comparable yields and higher credit quality
For more relative market trends, visit ETF Trends.