By David Schassler, Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck

The VanEck Vectors® Muni Allocation ETF (MAAX) tactically allocates among VanEck municipal bond ETFs based on interest rate and credit opportunities to seek capital appreciation plus tax-exempt income. It uses a data-driven, rules-based process that leverages technical and macroeconomic indicators to guide credit and duration exposure, seeking to avoid market risks when appropriate. The expanded PDF version of this commentary can be downloaded here.

Overview

The VanEck Vectors® Muni Allocation ETF (MAAX®) had a NAV total return +1.00% vs. +0.61% for its benchmark for the month. The 30-Day SEC Yield for MAAX is 2.79% and the taxable equivalent 30-Day SEC yield, assuming the highest federal tax rate of 37%, is 4.43%.

The results are in and the Democrats have swept Georgia. This means that President-elect Biden’s tax plan is more likely to become a reality. This is the tax plan, if enacted, that calls for raising taxes on the wealthy, which in turn would likely increase the demand for tax-exempt income. That is where muni bonds come in. Other than higher taxes, the Democratic control of the U.S. Senate will make it more likely for federal aid to make its way to the state and local governments that most need it. This would be a clear win for financially struggling municipalities and the investors who back them. There is also the potential for more infrastructure projects, which is yet another positive for the municipal bond market.

December was another great month for MAAX, as it continued to benefit from strong demand for muni bonds. The chart below illustrates the performance of each holding. As you can see, its top performing positions were in high yield, with the VanEck Vectors® High Yield Muni ETF (HYD®), a 30% allocation within MAAX, and the VanEck Vectors® Short High Yield Muni ETF (SHYD®), a 5% allocation within MAAX, share prices returning +1.36% and +0.82%, respectively. MAAX’s other investments in intermediate and long duration investment grade bonds also performed well, with the VanEck Vectors® Intermediate Muni ETF (ITM®), returning +0.55% and the VanEck Vectors® Long Muni ETF (MLN®), returning +0.38%.

BBG-Data

MAAX entered January with a 35% allocation to high yield, 35% allocation to investment grade long duration and 30% allocation to intermediate-term investment grade. We believe that this positioning allows MAAX to continue to balance both the risks and rewards of the municipal bond market.

The next section highlights the risk factors that led to this positioning.

Average Annual Total Returns (%) as of December 31, 2020
1 MoYTD1 YearLife
(05/15/19)
MAAX (NAV)1.000.320.322.33
MAAX (Share Price)1.120.260.262.34
Bloomberg Barclays
Municipal Bond Index
0.615.215.215.15
Average Annual Total Returns (%) as of December 31, 2020
1 MoYTD1 YearLife
(05/15/19)
MAAX (NAV)1.000.320.322.33
MAAX (Share Price)1.120.260.262.34
Bloomberg Barclays
Municipal Bond Index
0.615.215.215.15

† Returns less than a year are not annualized.

Expenses: Gross 0.38%; Net 0.38%. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Expenses are based on estimated amounts for the current fiscal year. Cap excludes acquired fund fees and expenses, interest expense, trading expenses, taxes and extraordinary expenses.

The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reim­bursements. Had the ETF incurred all expenses and fees, investment re­turns would have been reduced. Investment returns and ETF share values will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost.

Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year.

Muni Risk Factors

The model that determines the allocations for MAAX considers this to be a stable risk regime as it relates to the two key risks taken by municipal bond investors: credit and duration. It measures risk via price levels, volatility and historical relationships. Risk is scored from 0 to 100. A score of 50 or lower implies that risk is low and a score of 50 or higher implies that risk is high.

The risk score for credit remains 0. All of the credit indicators in the model, which are designed to measure periods of heightened credit risk, remain bullish. This suggests that there is likely to be continued near-term stability in the credit markets.

Credit Total Risk Score

Credit Total Risk Score

The risk score for duration remains at 0. Muni yields have been remained stable, regardless of rising Treasury yields, due to strong demand.

Duration Total Risk Score

Duration Total Risk Score

In conclusion, we believe that the environment will continue to be favorable for the municipal bond market and this is being confirmed by the indicators that drive the allocations within MAAX. Therefore, MAAX will continue to be positioned overweight both credit and duration relative to its benchmark in order to take advantage of the opportunities.

Originally published by VanEck, 1/15/21


IMPORTANT DISCLOSURES

This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

An investment in the Funds may be subject to risks which include, fund of funds risk, high portfolio turnover, model and data risks, management, operational, authorized participant concentration and absence of prior active market risks, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares and non-diversified risks. The funds may be subject to following risks as a result of investing in Exchange Traded Products including municipal securities, credit, high yield securities, tax, interest rate, call, state concentration and sector concentration risks. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that a Funds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax (AMT) rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. A portion of the dividends you receive may be subject to AMT. For a more complete description of these and other risks, please refer to each Fund’s prospectus.

Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year.

The VanEck Vectors ETFs are not sponsored by, endorsed, sold or promoted by Bloomberg or Barclays and neither Bloomberg nor Barclays makes any representation regarding the advisability of investing in them. The only relationship to the Adviser with respect to the VanEck Vectors ETFs is the licensing of certain trademarks and trade names of Bloomberg and Barclays and the BLOOMBERG BARCLAYS INDICES that are determined, composed and calculated by Bloomberg without regard to the Adviser or any investor in the VanEck Vectors ETFs.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.