A Different Way to Look at Muni ETFs | ETF Trends

Income investors are often gravitate toward municipal bonds and the related ETFs for sound credit quality and decent though not high yields. There are ways for investors to juice municipal bond yields a bit while keeping interest rate risk in check.

Enter the VanEck Vectors Short High-Yield Municipal Index ETF (NYSEArca: SHYD), the shorter duration answer to the popular VanEck Vectors High Yield Municipal Index ETF (NYSEArca: HYD). SHYD has an effective duration of 4.38 years, according to issuer data.

Munis also help diversify fixed-income portfolios. Investors who typically follow the Barclays U.S. Aggregate Bond Index will not have municipal bond exposure, so a muni bond ETF can complement core fixed-income positions.

SHYD tracks the Bloomberg Barclays Municipal High Yield Short Duration Index (BMHYTR), “which is intended to track the overall performance of the U.S. dollar denominated high yield short-term tax-exempt bond,” according to VanEck.


Municipal debt and bond-related exchange traded funds have been used as a relatively stable fixed-income stream for many investment portfolios.

Since muni bond interest is exempt from federal taxes, muni ETFs are a good way for investors seeking tax-exempt income, especially those in higher tax brackets. Due to its tax-exempt status, the asset category is also best utilized in taxable accounts.

SHYD, which hit a 52-week high last Friday, has 30-day SEC yield of 3.11%. The fund holds 546 municipal bonds with a duration to worst of 4.20 years.

Have you signed up for the ETF Trends Virtual Summit on Wednesday, April 17? It’s complimentary for financial advisors (earn up to 5 CE Credits)! Register now to learn about fixed income strategies for a changing debt world.

Municipal bonds continue to experienced robust demand from U.S. investors as reliable source of yield, especially among taxable accounts due to the debt securities’ favorable tax-exempt status. The calendar indicates investors may want to give munis a look over the near term.

The tax-exempt status also creates high demand for municipal bonds. Consequently, the perceived bond yields are typically lower than their taxable counterparts.

Debt issued by Illinois and New Jersey combine for 30.70% of SHYD’s weight.

For more information on the munis market, visit our municipal bonds category.