• Muni Nation

    Redefine Your Muni Core with Intermediates

    Jim Colby, Portfolio Manager
    October 01, 2013

    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:

    • The intermediate muni index (LMT2TR) shown in the chart below has historically outperformed the short- and long-term muni indices.

    Highest Return Was the Intermediate (6-17 Year) Index1
    (Annualized Five-Year Period Ending 8/31/13)

    Chart: Highest Return Was Intermediate Index 

    Source: VanEck 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.

    • As shown in the chart below, long-term munis, e.g., those above 17 years, offered little extra yield in exchange for their generally higher sensitivity to rising interest rates — only 0.57% of additional yield from 17 to 30 years.

    Municipal Yield Curve Flat at Long End
    (As of 9/24/13) 

    Chart: Municipal Yield Curve Flat at Long End 

    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)

    Performance History Table 

    *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 800.826.2333 or by visiting vaneck.com/etfs.

    The "Net Asset Value" (NAV) of a VanEck 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. VanEck 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. 




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    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.

    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. 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.

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