Many portfolio manager commentaries from large, well-known investment companies have, over the past several weeks, generated thoughts about the murky future of the markets and economy. Several appear to lead with the suggestion that an unseen hand is poised to pull on a figurative lever to categorically change broad strategy (asset allocation) from bonds to stocks; this would be called "The Great Rotation." Others offer suggestions that the current strategy of asset allocation, which has taken us to significant returns over the past 24 months, is about to combust; this would be called "Bursting the Bubble." Because of the eye-catching phraseology involved, I fear that readers may feel that these potentialities are faits accomplis. The Great Rotation, or change in asset allocation from bonds to stocks, is a discussion worth having for those investors and managers who are actively managing assets and trying to generate alpha or returns significantly higher than median. Given that, at some point, it is not unreasonable to expect that stimulative efforts of the Federal Reserve will induce growth and inflation, I believe that we will likely see interest rates rise and turn the favor of investors toward equities. We just don't know whether this turn will happen during this calendar year. Bursting the Bubble relates to the possibility that an overreliance upon bonds as an asset allocation will lead to damaged returns if and when rates do begin to rise. A reasonable definition of the term "Bubble Theory" reads as follows: "A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these bubbles are easily identifiable."* I offer up this comment to suggest that while these terms have merit, I believe that there is danger in accepting the face value of these concepts, especially out of context of the longer view of an asset allocation strategy using tax-exempt bonds. For investors in tax-exempt products, one must remember that since personal income taxes have risen, the value of the exemption might mean more now than it did when purchased over the past several years. Furthermore, the debate should, in my opinion, focus less on whether prices have truly risen "far beyond their true values" and focus more on the fact that this asset class delivers what I consider a greater benefit of credit quality and stability in an increasingly volatile marketplace.
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 or visit
vaneck.com. Please read the
prospectus and summary prospectus carefully before investing.
Van Eck Securities Corporation, Distributor
666 Third Avenue
New York, NY 10017
A Case for Municipal Bond Optimism
Muni High Yield’s Response to Trump’s Surprise Win
Check Your Fear and Favor Fundamentals
Get Even More Tactical with Our Newest Muni ETFs
Munis: Market Views for the Second Half
Munis: High Drama on the High Wire
Munis: Expect More from Your Munis
Munis: Supply Dynamics
Munis: Flattening Yield Curve Supports Performance
Munis: Keep the Pedal to the Metal
Munis: The Compelling Case for Closed-End Municipal Bond Funds
Munis: Muni Market is Generally Healthy Despite Some Headlines
Munis: Muni ETFs in a Portfolio
Munis: Using Muni ETFs to Complement a Portfolio of Bonds
Munis: Utility and Sensibility
Munis: Tune into My Webcast
Munis: An Easy Way to Compare Muni Funds
Munis: Investment Opportunities in the Current Environment
Munis: March Madness?
Munis: Once Upon a Time
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.