By James Colby
Portfolio Manager and Strategist, Municipal Bonds
Yields, the market for returns in fixed income, are now higher for Municipals than at any time in the past 15 years. We believe the performance opportunity can be meaningful.
Here we are in Q4 of 2022, racing toward the end of one of the most difficult years – in recent history – for fixed income investors. We are not alone in expressing this view. But, we are also aware that while it might be the “darkest before the dawn” scenario, we need not rely on old saws to create a reality check for evaluating opportunities. Dawn will likely come before we realize it, so let’s look at 4 reality checks regarding the municipal market to ease possible investor concerns.
As with all fixed income, municipal bonds are influenced by interest rate decisions and guidance by the Federal Reserve (the Fed). As the Fed moves to combat inflation, interest rates rise, and the municipal market follows.
Yes, valuations have sunk, but if you do not sell, you do not experience a loss. The lower value is linked to the increase in rates (interest rate risk) and not a general decline in credit quality (credit risk) in the Municipal market, so there is likely no urgency to sell blindly.
Yields, the marker for returns in fixed income, are now higher for Municipals than at any time in the past 15 years. The performance opportunity can be meaningful.
Since 1965, a down year in the municipal market has been followed by at least one year (or several) of positive returns1.
As the Fed’s behavior adds volatility to the municipal market, we believe the long-term prospects remain steady. The eventual return of municipal market performance is likely indisputable; the only question is when. While we await dawn, the realities above keep us warm.
VanEck offers eight municipal bond strategies for a wide variety of investors.
|Investment||Ticker||Closing Price||YTD Total Return||30-Day Yield||Assets (mil)|
|VanEck CEF Muni Income ETF||XMPT||$19.94||-30.03%||5.86%||$131|
|VanEck High Yield Muni ETF||HYD||$48.99||-19.26%||4.91%||$2600|
|VanEck Long Muni ETF||MLN||$16.35||-23.15%||4.33%||$206|
|VanEck Short High Yield Muni ETF||SHYD||$21.66||-11.82%||4.21%||$405|
|VanEck HIP Sustainable Muni ETF||SMI||$43.34||-12.64%||3.58%||$17|
|VanEck Intermediate Muni ETF||ITM||$43.55||-14.01%||3.52%||$1600|
|VanEck Short Muni ETF||SMB||$16.60||-6.21%||3.05%||$333|
|VanEck Muni Allocation ETF||MAAX||$19.99||-17.91%||2.82%||$3|
Source: VanEck. As of 10/28/22. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Please click here for standardized performance current to the most recent quarter ended.
Explore our Muni ETFs here.
Originally published by VanEck on 3 November 2022.
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1 Municipal Market Advisors 10-Year Total Rate of Return Index.
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This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Municipal bonds may be less liquid than taxable bonds. A portion of the dividends you receive may be subject to the federal alternative minimum tax (AMT). There is no guarantee that municipal bonds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax 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. When interest rates rise, bond prices fall.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
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