By Michael Cohick, Director of Product Management
Municipal bonds typically dip in September and October but rebound in November and December, presenting a potential low-cost entry for tax-efficient investing as the year concludes.
Municipal bonds have historically seen negative performance in September and October, only to historically rebound in November and December. Muni bonds’ Fall pullback could offer investors an attractive entry point as we finish the last two months of the fourth quarter.
Investors looking to go on a muni bond holiday buying spree may want to consider the VanEck Short Muni ETF (SMB), which offers one of the lowest fees (0.07% expense ratio) in the short-term municipal bond peer group. In addition, SMB could be a good strategy for tax loss harvesting season, as investors can consider locking in their losses while they ride out 2023 with attractive tax-exempt income.
SMB Costs 70% less than the Average Expense Ratio of ETFs in the Muni National Short Morningstar Category
Source: Morningstar Direct. As of 10/31/2023.
What is Tax Loss Harvesting?
Tax loss harvesting is a strategy investors use to minimize their annual tax liability. The basic idea is to sell investments that have lost value to offset capital gains from other investments. Let’s say you own an ETF that has decreased in value by $2,000 since you purchased it. You can sell the ETF and use the $2,000 loss to offset any capital gains you may have realized during the year.
Selling an asset disrupts the balance of a portfolio. After tax-loss harvesting, investors with carefully constructed portfolios can replace the asset sold with a similar alternative to maintain the portfolio’s asset allocation and expected risk and return profile. Investors should avoid buying the same asset they just sold at a loss, which may help them avoid the IRS wash-sale rule. Alternatively, SMB, with its low expense ratio and high correlation to other short-duration or short-maturity-focused ETFs, makes it an ideal option for investors considering implementing such a tax strategy.
High Correlation Among Short-Maturity Focused ETFs Makes for Ideal Tax Lost Harvest Opportunity
| Ticker | Name | SMB | SUB | DFNM | JMST | SHM | MEAR | TAFI | SMMU | FUMB | FSMB |
| SMB | VanEck Short Muni ETF | 1.00 | |||||||||
| SUB | iShares Short-Term National Muni Bd ETF | 0.95 | 1.00 | ||||||||
| DFNM | Dimensional National Municipal Bond ETF | 0.94 | 0.98 | 1.00 | |||||||
| JMST | JPMorgan Ultra-Short Municipal Inc ETF | 0.86 | 0.90 | 0.91 | 1.00 | ||||||
| SHM | SPDR® Nuveen Blmbg ST MunBd ETF | 0.96 | 0.98 | 0.98 | 0.91 | 1.00 | |||||
| MEAR | iShares Short Maturity Municipal Bd ETF | 0.85 | 0.86 | 0.91 | 0.92 | 0.89 | 1.00 | ||||
| TAFI | AB Tax-Aware Short Duration ETF | 0.96 | 0.98 | 0.98 | 0.93 | 0.92 | 0.82 | 1.00 | |||
| SMMU | PIMCO Short Term Municipal Bond Actv ETF | 0.95 | 0.97 | 0.99 | 0.88 | 0.96 | 0.88 | 0.98 | 1.00 | ||
| FUMB | First Trust Ultra Short Dur Muncpl ETF | 0.88 | 0.92 | 0.92 | 0.88 | 0.90 | 0.86 | 0.95 | 0.89 | 1.00 | |
| FSMB | First Trust Short Dur Mgd Muncpl ETF | 0.93 | 0.96 | 0.99 | 0.86 | 0.96 | 0.85 | 0.98 | 0.98 | 0.89 | 1.00 |
Source: Morningstar Direct. As of 10/31/2023. Correlation is based on 3-year returns.
| Quarter End Returns (%) as of 9/30/2023 | ||||||||||||
| Ticker | Investment Objective | Fund Type (Active/Passive) | 1 Yr | 3 Yr | 5 Yr | 10 Yr | Since Inception | Inception Date | Expense Ratio | |||
| SMB | VanEck Short Muni ETF | Seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE Short AMT-Free Broad National Municipal Index (MBNS). | Passive | NAV | 2.05 | -1.19 | 0.84 | 0.87 | 1.68 | 02/22/2008 | Gross | 0.07 |
| Market Price | 2.04 | -1.21 | 0.91 | 0.87 | 1.68 | Net | 0.07 | |||||
| SUB | iShares Short-Term National Muni Bd ETF | Seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds with remaining maturities between one month and five years. | Passive | NAV | 1.98 | -0.52 | 0.89 | 0.75 | 1.26 | 11/05/2008 | Gross | 0.07 |
| Market Price | 1.72 | -0.52 | 0.89 | 0.75 | 1.26 | Net | 0.07 | |||||
| DFNM | Dimensional National Municipal Bond ETF | Seeks to provide current income that is expected to be exempt from federal personal income tax. | Active | NAV | 1.68 | — | — | — | -2.54 | 11/15/2021 | Gross | 0.19 |
| Market Price | 1.78 | — | — | — | -2.54 | Net | 0.17 | |||||
| JMST | JPMorgan Ultra-Short Municipal Inc ETF | Seeks to deliver current income exempt from federal income taxes while managing risk. | Active | NAV | 2.88 | 0.84 | — | — | 1.45 | 10/16/2018 | Gross | 0.18 |
| Market Price | 2.94 | 0.84 | — | — | 1.45 | Net | 0.18 | |||||
| SHM | SPDR® Nuveen Blmbg ST MunBd ETF | Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Managed Money Municipal Short Term Index. | Passive | NAV | 1.41 | -1.58 | 0.47 | 0.60 | 1.51 | 10/10/2007 | Gross | 0.20 |
| Market Price | 1.27 | -1.58 | 0.47 | 0.60 | 1.51 | Net | 0.20 | |||||
| MEAR | iShares Short Maturity Municipal Bd ETF | Seeks to maximize tax-free current income. | Active | NAV | 3.12 | 0.88 | 1.24 | — | 1.07 | 03/03/2015 | Gross | 0.25 |
| Market Price | 3.04 | 0.88 | 1.24 | — | 1.07 | Net | 0.25 | |||||
| TAFI | AB Tax-Aware Short Duration ETF | Seeks to provide relative stability of principal and a moderate rate of after-tax return and income. | Active | NAV | 3.01 | — | — | — | 1.22 | 09/13/2022 | Gross | 0.27 |
| Market Price | 3.08 | — | — | — | 1.22 | Net | 0.27 | |||||
| SMMU | PIMCO Short Term Municipal Bond Actv ETF | Seeks attractive tax-exempt income, consistent with preservation of capital. | Active | NAV | 2.89 | -0.10 | 1.21 | 1.03 | 1.05 | 02/01/2010 | Gross | 0.35 |
| Market Price | 2.74 | -0.10 | 1.21 | 1.03 | 1.05 | Net | 0.35 | |||||
| FUMB | First Trust Ultra Short Dur Muncpl ETF | Seeks to provide federally tax-exempt income consistent with capital preservation. | Active | NAV | 2.57 | 0.71 | — | — | 1.14 | 11/01/2018 | Gross | 0.45 |
| Market Price | 2.63 | 0.71 | — | — | 1.14 | Net | 0.45 | |||||
| FSMB | First Trust Short Dur Mgd Muncpl ETF | Seeks to provide federally tax-exempt income consistent with capital preservation. | Active | NAV | 1.89 | -0.41 | — | — | 1.17 | 11/01/2018 | Gross | 0.55 |
| Market Price | 1.74 | -0.41 | — | — | 1.17 | Net | 0.55 | |||||
Source: Morningstar as of 9/30/2023.
The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.
Van Eck Associates Corporation (the “Adviser”) will pay all expenses of SMB, 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. Notwithstanding the foregoing, the Adviser has agreed to pay the offering costs until at least September 1, 2024. “Other Expenses” have been restated to reflect current fees.
The VanEck Short Muni ETF (SMB) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE Short AMT-Free Broad National Municipal Index (MBNS), which is intended to track the overall performance of the U.S. dollar-denominated short-term tax-exempt bond market.
SMB offers:
- Income exempt from federal taxes.
- Focus on short-duration municipal bonds.
- Investment-grade exposure with high credit quality.
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Originally published 9 November 2023.
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