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Munis: A View from the Eighth Month


YTD Performance


JIM COLBY: We're going to call this segment, “A View from the Eighth Month;” it’s a summary of what has happened year-to-date in the municipal marketplace. The fundamentals that are important to pay attention to continue to be positive for the municipal marketplace. Supply and demand are still very favorable for municipals. As of the month of August, coupon and maturity cash coming into the marketplace for reinvestment total  some $28 billion, while new issue supply, as measured by the municipal market data, comes to one third of that at about $7-8 billion available for investment purposes. That data point alone suggests a potential opportunity for performance to continue in the municipal marketplace. Fundamentals have taken us year-to-date to several very positive numbers. Municipal performance as measured by the Barclays Municipal Bond Index is up over 6.8% year-to-date. The Barclays High Yield Municipal Bond Index is up over 8.2% year-to-date. The numbers that I just gave you relative to the fundamentals and the opportunity set suggest that continued good performance may be available in the municipal space, in my view.


Credit Quality


COLBY: Another feature that accrues to the general strong performance of municipals year-to-date and perhaps also in years to come is embedded in a report recently issued by Moody's Investors Service. The report suggests that the ratio of municipal credit rating downgrades to upgrades continues to narrow. That means that fundamentals at the local level are generally improving. Credit quality has improved. One point that's worth noting in that report by Moody's is that both the states of New York and California, the two largest issuers of municipal bonds in our industry, received upgrades this past quarter: California to Aa3 and New York State to Aa1. That in itself buoys overall credit quality in the municipal space.


Puerto Rico


COLBY: As everyone knows Puerto Rico has been significantly in the headlines for quite some time. I wouldn't say that Puerto Rico has had no impact upon the municipal marketplace, but certainly performance relative to the indexes that I mentioned earlier in this segment suggests that Puerto Rico has not had a damaging impact upon the broad municipal marketplace. Its problems have been largely contained within the context of the investors who invest or continue to support investing in Puerto Rico issuance and credit. The problems that Puerto Rico may face going forward are considerable. They're economic, political, and legal. Still, Puerto Rico remains an important element in the municipal marketplace and will likely have an impact upon investors and investment through the remainder of this year no matter what happens. The important thing to remember is the broad municipal marketplace, which is some $3.7 trillion in overall valuation, remains largely unaffected by the events that are taking place in the commonwealth of Puerto Rico.


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IMPORTANT DISCLOSURE


The Barclays Municipal Bond Index covers investment-grade municipal bonds with a nominal maturity of one or more years.


 

All of the Market Vectors municipal bond ETFs can potentially hold debt issued by the Commonwealth of Puerto Rico. At the time of this filming, only the Market Vectors High-Yield Municipal Index ETF and the Market Vectors Short High-Yield Municipal Index ETF, held Puerto Rico debt. This means the Funds would be susceptible to additional risks associated with investment in Puerto Rico.


Gradations of creditworthiness are indicated by rating symbols, with each symbol representing a group in which the credit characteristics are broadly the same. There are nine symbols that are used by Moody’s to designate least credit risk to that denoting greatest credit risk: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. Ratings from Ba1 to Caa3 are below investment grade or speculative grade.


The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about Van Eck Funds, Market Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com


Municipal bonds are subject to risks related to litigation, legislation, political changes, local business or economic conditions, conditions in underlying sectors, bankruptcy or other changes in the financial condition of the issuer, and/or the discontinuance of the taxation 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. The Fund may also be subject to credit risk, interest rate risk, call risk, lease obligations, tax risk, and risks associated with non-investment grade securities. The market for municipal bonds may be less liquid than for taxable bonds. There is no guarantee that the Fund’s income will be exempt from federal or state income taxes. Federal or state changes in income or 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. For a more complete description of these and other risks, please refer to each Fund’s prospectus.


A portion of the Fund's dividends may be subject to federal, state, or local income taxes or may be subject to the federal alternative minimum tax.


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 the Fund carefully before investing.  Please read the prospectus and summary prospectus carefully before investing.


Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results. Returns for actual Fund investments may differ from what is shown because of differences in timing, the amount invested, and fees and expenses.


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.


No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation. © 2014 Van Eck Global.


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