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  • Muni Nation

    In Total Pursuit of Yield

    David Schassler, Portfolio Manager
    June 14, 2019
     

    Municipal Allocation ETF Overview

    The VanEck Vectors® Municipal Allocation ETF (“MAAX”) launched on May 16. During MAAX’s short life, it has returned 0.64% vs. 0.44% for the Bloomberg Barclays Municipal Bond Index as of 5/31/19.

    The goal of this commentary is to keep you, our investors, abreast of the risks in the municipal bond market, as we measure them. Typically, the municipal bond market is a sleepy place. That is a good thing! It should allow us to consistently collect our coupon payments with stability in our bond prices. However, despite our desire for this market to be sleepy all of the time, that is not the reality. From time to time, the market will not cooperate. It is during these periods that the importance of risk management becomes clear to all.

    Muni Risk Factors

    MAAX measures credit and duration risks independently. These risks are then scored from 0 to 100. Simply, a score below 50 is bullish and a score of 50 or higher is bearish. The current credit risk score is 0 and the current duration risk score is 33. This leads to our overweight credit and duration positioning.

    Credit Total Risk Score

    Credit Risk

    Duration Total Risk Score

    Duration Risk

    We also have the ability to dive deeper into the individual factors that compose these scores. The scoring methodology works the same. These individual factors include momentum, volatility and mean reversion.

    As you can see from the next two charts, credit and duration momentum are strong.

    Credit Trend Risk Score

    Credit Momentum Risk Score

    Duration Trend Risk Score

    Duration Momentum Risk Score


    Moving on to volatility, we measure this factor using both realized and implied indicators. Currently, volatility risks remain low for both credit and duration.

     

    Credit Volatility Risk Score


    Duration Volatility Risk Score


    Lastly, mean reversion factors measure divergences in typical fixed income relationships. These include credit spreads, yield ratios and cross-asset correlations. These metrics, too, are bullish. 

    Credit Mean Reversion Risk Score

    Credit Mean Reversion Risk Score


    Duration Mean Reversion Risk Score


    Right now, given the modest risk levels measured by the model, MAAX is taking both credit and duration risks in the pursuit of yield. As always, these risks will be monitored closely and MAAX's exposures will be adjusted if the risk environment changes materially.


    Click here for performance as of the most recent month end.

    IMPORTANT DISCLOSURES

    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.

    An investment in the Funds may be subject to risks which include, fund of funds risk, high portfolio turnover, model and data risks, management, operational, authorized participant concentration and absence of prior active market risks, trading issues, market, fund shares trading, premium/discount and liquidity of fund shares and non-diversified risks. The funds may be subject to following risks as a result of investing in Exchange Traded Products including municipal securities, credit, high yield securities, tax, interest rate, call, state concentration and sector concentration risks. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that a Funds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax (AMT) 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. A portion of the dividends you receive may be subject to AMT. For a more complete description of these and other risks, please refer to each Fund's prospectus.

    Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year.

    The VanEck Vectors ETFs are not sponsored by, endorsed, sold or promoted by Bloomberg or Barclays and neither Bloomberg nor Barclays makes any representation regarding the advisability of investing in them. The only relationship to the Adviser with respect to the VanEck Vectors ETFs is the licensing of certain trademarks and trade names of Bloomberg and Barclays and the BLOOMBERG BARCLAYS INDICES that are determined, composed and calculated by Bloomberg without regard to the Adviser or any investor in the VanEck Vectors ETFs.

    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. 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.

    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. To obtain a prospectus and summary prospectus, which contains 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
    800.826.2333
  • 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 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.

    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.