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  • Municipal Bonds

    Strong Demand: Still Bullish

    David Schassler, Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck
    September 21, 2020

    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 -0.30% vs. -0.47% for its benchmark for the month.

    Overall, August was a muted month for performance in the municipal bond market. Depending on duration and credit quality, the returns for the month ranged from modestly positive to modestly negative. MAAX’s top performing positions were in long-duration investment grade and short-duration investment grade. The VanEck Vectors® Short High Yield Muni ETF (SHYD®) returned +0.33% and the VanEck Vectors® Long Muni ETF (MLN®) returned +0.22% (both based on market price). The bottom performing positions were in investment grade intermediate-term and high yield bonds. The VanEck Vectors® Intermediate Muni ETF (ITM®) returned -0.60% and the VanEck Vectors® High Yield Muni ETF (HYD®) returned -0.23% (both based on market price).

    The municipal bond market remains challenged, to say the least. COVID-19 has stressed the finances of municipalities as tax revenues are down tremendously as people are making and spending less money. But, regardless of the headwinds, the demand for municipal bonds remains robust as the Municipal Bond Category estimate net flow YTD is $21.8 billion according to Morningstar. Low interest rates have become a necessity to maintain stability in a debt-ridden world. However, that does not erase the needs of citizens who rely on municipal services or the needs of investors to earn a worthwhile after-tax return on their money.

    MAAX will continue to seek to balance both the risks and rewards of the asset class. It maintains a 30% allocation to high yield, a 35% allocation to investment grade long duration, a 30% allocation to intermediate-term investment grade and a 5% allocation to short-term high yield. This has helped the strategy generate outperformance over the past few months and recover much of the losses experienced in the beginning of the year.

    The next section highlights the risk factors that led to this positioning.

    Average Annual Total Returns (%) as of August 31, 2020
      1 Mo YTD 1 Year Life
    MAAX (NAV) -0.30 -2.22 -2.60 0.92
    MAAX (Share Price) -0.01 -2.27 -2.58 0.94
    Bloomberg Barclays
    Municipal Bond Index
    -0.47 3.31 3.24 5.03
    Average Annual Total Returns (%) as of June 30, 2020
      1 Mo YTD 1 Year Life
    MAAX (NAV) 1.64 -3.96 -1.63 -0.54
    MAAX (Share Price) 1.59 -3.95 -1.47 -0.47
    Bloomberg Barclays
    Municipal Bond Index
    0.82 2.08 4.45 4.69

    Returns less than a year are not annualized.

    Expenses: Gross 0.38%; Net 0.38%. 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 reim­bursements. Had the ETF incurred all expenses and fees, investment re­turns 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. As you can see in the charts below, the risk scores for both credit and duration are 0.

    Credit Total Risk Score

    Credit Total Risk Score

    Duration Total Risk Score

    Duration Total Risk Score

    You will notice that the duration risk score was elevated last month. That is because of increasing correlations between bond yields and equities. This is often a warning sign that trouble may be lurking around the corner. However, that risk has largely abated and never rose to the level of action, whereby we would reduce our duration risk, because the risk levels in the other indicators remained subdued.


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    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.

  • Authored by

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