The benefits of a Joe Biden presidency on municipal bonds are well-documented, but what other tailwinds exist for ETF investors to hop on the municipal bond bandwagon? One area is efficient pricing methodologies, which could help the VanEck Vectors Muni Allocation ETF (MAAX).

The fund seeks maximum long-term after-tax return, consisting of capital appreciation and income generally exempt from federal income tax. The fund normally invests at least 80% of its total assets in investments the income from which is exempt from U.S. federal income tax (other than AMT).

MAAX is an actively managed ETF that invests, under normal circumstances, primarily in VanEck Vectors ETFs that are registered under the applicable federal securities laws and that invest in publicly traded municipal bonds that cover the U.S. dollar-denominated investment grade and below investment grade tax-exempt bond market.

MAAX gives investors:

  • A guided allocation approach: Allocates among VanEck municipal bond ETFs based on interest rate and credit opportunities
  • Maximum total return and income: Performance oriented strategy offers the potential for capital appreciation plus tax-exempt income
  • Actively management: Process uses technical and macroeconomic indicators to guide credit and duration exposure, seeking to avoid market risks when appropriate

MAAX Chart

Muni Pricing Efficiency

Accurate pricing in the bond markets is always a welcome technological advance when researchers are able to identify a more efficient method. Per a University of Oregon article, “a team of researchers from the UO Department of Finance found three-fold benefits when the gap in trade reporting in municipal bond markets changed from a full day to fifteen minutes after implementation of the Real-Time Transaction Reporting System.”

The aforementioned University of Oregon study found that “by assessing data surrounding the time that Real-Time Transaction Reporting System was implemented, the study demonstrates how real-time price discovery has transformed municipal bond trading, investing and, potentially, the cost of financing civic projects. The researchers argue that faster and more accurate disclosure in the $4 trillion over-the-counter municipal bond market leads to efficiencies that are likely to benefit investors, issuers and ultimately taxpayers.”

“First, we find a significant reduction in transaction costs that varies with investor sophistication,” U of O researchers wrote in a paper. “Second, we find significant increases in municipal trading volume across the liquidity spectrum. Third, we find that dealers increased market-making activities after the introduction of the Real-Time Transaction Reporting System.”
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