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  • Municipal Bonds

    High Yield Munis Benefit from Anticipated Fiscal Support

    David Schassler, Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck
    February 17, 2021

    The VanEck Vectors® Muni Allocation ETF (MAAX) tactically allocates among VanEck municipal bond ETFs based on interest rate and credit opportunities to seek capital appreciation plus tax-exempt income. It uses a data-driven, rules-based process that leverages technical and macroeconomic indicators to guide credit and duration exposure, seeking to avoid market risks when appropriate. The expanded PDF version of this commentary can be downloaded here. 


    The VanEck Vectors® Muni Allocation ETF (MAAX®) had a NAV total return of +1.33% vs. +0.64% for the Bloomberg Barclays Municipal Bond Index. MAAX’s asset allocation mix in January, as shown below, was overweight both high yield and long duration bonds.

    VanEck Vectors Muni Allocation ETF Average Weight 12/31/20-1/31/21

    The largest contributors to performance were high yield (HY), with a return of +2.06%, and long investment grade (IG), with a return of +0.90%. The municipal bond market continues to benefit from both strong demand and limited supply. The Investment Company Institute reported that muni bonds had a record-breaking $15.1 billion in new flows in the first few weeks of the year.Demand is being driven by anticipation of both higher taxes and more federal support to state and local governments. HY issuances, in particular, have been a major beneficiary of expected future fiscal support. The weakest performing segment of the portfolio was intermediate IG, which returned +0.28%.

    VanEck Vectors Muni Allocation ETF Total Return 12/31/20-1/31/21

    Source: VanEck, FactSet Research Systems

    The high yield segment of the portfolio is diversified by both intermediate and short duration. Intermediate HY returned +2.05% and short HY returned +2.16%. However, intermediate HY contributed much more to performance because it was a much larger allocation within the portfolio.
    VanEck Vectors Muni Allocation ETF High Yield Return 12/31/20-1/31/21

    Source: VanEck, FactSet Research Systems

    Average Annual Total Returns (%) as of January 31, 2021
      1 Mo YTD 1 Year Life
    MAAX (NAV) 1.33 1.33 -0.64 3.00
    MAAX (Share Price) 1.25 1.25 -0.77 2.97
    Bloomberg Barclays
    Municipal Bond Index
    0.64 0.64 4.01 5.28
    Average Annual Total Returns (%) as of December 31, 2020
      1 Mo YTD 1 Year Life
    MAAX (NAV) 1.00 0.32 0.32 2.33
    MAAX (Share Price) 1.12 0.26 0.26 2.34
    Bloomberg Barclays
    Municipal Bond Index
    0.61 5.21 5.21 5.15

    † Returns less than a year are not annualized.

    Expenses: Gross 0.35%; Net 0.35%. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Expenses are based on estimated amounts for the current fiscal year. Cap excludes acquired fund fees and expenses, interest expense, trading expenses, taxes and extraordinary expenses.

    The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reim¬bursements. Had the ETF incurred all expenses and fees, investment re¬turns would have been reduced. Investment returns and ETF share values will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost.

    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.

    Muni Risk Factors

    The model that determines the allocations for MAAX considers this to be a stable risk regime as it relates to the two key risks taken by municipal bond investors: credit and duration. It measures risk via price levels, volatility and historical relationships. Risk is scored from 0 to 100. A score of 50 or lower implies that risk is low and a score of 50 or higher implies that risk is high.

    The risk score for credit remains 0. This suggests that there is likely to be continued near-term stability in the credit markets.  

    Credit Total Risk Score

    Credit Total Risk Score

    The risk score for duration is also at 0 due to the continued stability in the muni market.

    Duration Total Risk Score

    Duration Total Risk Score

    U.S. Treasury yields have increased from an all-time low of 0.51% in August to 1.16% today due to expectations of future economic growth. However, muni yields continue to compress due to strong demand. This is creating a valuation hurdle between IG municipal bonds and U.S. Treasuries. The chart below demonstrates the ratio of 10-Yr AAA rates muni bonds relative to the 10-Yr U.S. Treasury note. The current ratio is at a 20-year low, which increases the relative attractiveness of IG to HY muni bonds.

    Muni/UST 1Y Ratio January 2020 - January 2021

    Source: Bloomberg

    The chart below demonstrates the current, previous months and recent shifts in MAAX’s asset allocation. There were minimal shifts in exposure during the month due to HY outperformed IG.

    Asset Allocation Weights January 2021 vs December 2020

    Source: VanEck, FactSet Research Systems

    In conclusion, the indicators in the model are signaling continued strength in the municipal bond market with a bias towards HY and long duration IG. Therefore, MAAX will continue to be positioned overweight both credit and duration, relative to its benchmark, while closely monitoring for signs of deterioration within the muni market.


    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.

    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 Please read the prospectus and summary prospectus carefully before investing.

    © 2021 VanEck.

  • Authored by

    David Schassler
    Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck