James Colby has more than 30 years of fixed income experience. Portfolio Manager of Municipal Bond ETFs at VanEck, he is known for his perspective on the U.S. municipal bond marketplace.
The events in the fixed income markets of the past several months may have left many municipal bond investors concerned, if not confused, about what to think and how to react.Over the long term we could potentially be looking at higher interest rates as the new normal. With that in mind, I want to begin a discussion about ways one could seek to recalibrate a municipal bond investment strategy in the current investment reality. I believe investment-grade municipal bond investors may want to consider positioning their core muni holdings in intermediate maturities (6-17 year range) because:
Highest Return Was the Intermediate (6-17 Year) Index1(Annualized Five-Year Period Ending 8/31/13)
Source: Van Eck Global Research, FactSet. Past performance does not guarantee future results. Intermediate- and long-term bonds are generally more sensitive to changes in interest rates than short-term bonds. Please see footnote 1 for a description of each index.
Municipal Yield Curve Flat at Long End(As of 9/24/13)
Source: BofA Merrill Lynch. AAA investment-grade municipal yield curve. Yield curves are subject to change daily. Past performance does not guarantee future results. Intermediate- and long-term bonds are generally more sensitive to changes in interest rates than short-term bonds.
To access the intermediate part of the muni market, investors may want to consider an ETF of intermediate municipal bonds such as ITM®, Market Vectors Intermediate Municipal Index ETF. ITM’s underlying index, the Barclays AMT-Free Intermediate Continuous Municipal Index (LMT2TR), focuses on bonds with 6-17 year maturities.
Performance History: Average Annual Total Returns* (%)(As of 6/30/13)
*Returns of less than one year are not annualized. The total annual operating expenses of ITM, SMB, and MLN respectively are 0.24%, 0.20%, and 0.24%. The investment management agreement between Market Vectors ETF Trust (the "Trust") and Van Eck Associates Corporation (the "Adviser") provides that the Adviser will pay all expenses of the Fund, except for the fee payment under the investment management agreement, interest expense, offering costs, trading expenses, taxes, and extraordinary expenses.
The performance data quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. ETF returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.
Performance current to the most recent month end is available by calling 888.MKT.VCTR or by visiting vaneck.com/etf. The "Net Asset Value" (NAV) of a Market Vectors Exchange-Traded Fund (ETF) is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF's intraday trading value. Market Vectors ETF investors should not expect to buy or sell shares at NAV.Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Investors cannot invest directly in an Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested, and fees and expenses. Index returns assume that dividends have been reinvested.1Performance is based on the following indices. The Barclays AMT-Free Short Continuous Municipal Index (LMT1TR), the underlying index of SMB, is a market value weighted index designed to replicate the price movements of short-duration bonds with a nominal maturity of 1-6 years. The Barclays AMT-Free Intermediate Continuous Municipal Index (LMT2TR), the underlying index of ITM, is a market value weighted index designed to replicate the price movements of medium-duration bonds with a nominal maturity of 6-17 years. The Barclays AMT-Free Long Continuous Municipal Index (LMT3TR), the underlying index of MLN, is a market value weighted index designed to replicate the price movements of long-duration bonds with a nominal maturity of 17 years or more. An index's performance is not illustrative of any fund's performance.
IMPORTANT MUNI NATION® DISCLOSURE
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.
VanEck does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.
Please note this post represents the views of the author and these views may change at any time and from time to time. MUNI NATION is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck. MUNI NATION is a trademark of Van Eck Associates Corporation.
All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. An index’s performance is not illustrative of a fund’s performance. Indices are not securities in which investments can be made.
Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.
Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.
The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.
Diversification does not assure a profit or protect against loss.
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 a fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333. Please read the prospectus and summary prospectus carefully before investing.
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This website 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 website. Nothing on this website 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.
Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.