Jenna Dagenhart: Hello and welcome to Asset TV. Joining us now to share his insights on high yield munis is Jim Colby. He’s Portfolio Manager and Municipal Strategist at VanEck. Jim, would you say that ETFs remain a good choice for investing in high yield munis?
Jim Colby: Hi, Jenna. Thank you for having me. My answer to that is, yes. VanEck has long held the position that municipal high yield is a very suitable vehicle for the ETF product. Since 2009 the inception date of HYD [VanEck Vectors High Yield Muni ETF], our flagship product, it has proven to be a very effective vehicle. Its prospectus driven by the index construction, and obviously the approval of the regulatory agencies to create a highly diversified portfolio detailing the opportunities that do exist in the municipal high yield universe.
Jenna Dagenhart: What about mutual funds? What's happened to high yield muni mutual funds?
Jim Colby: Well, Jenna, in 2020 for the first two months, I would say the mutual fund product and the passive ETF product in municipal high yield have followed a similar path, but for mutual funds at the end of the first quarter, in March and April of this year, they experienced stresses that probably haven't been experienced since the financial crisis of 2008. Outflows put great strain on liquidity that is embedded in our processes, both in mutual funds as well as ETFs.
So, the real crux of the question, I believe, is whether or not the funds did perform as anticipated and how they reacted to the moments of illiquidity that existed at the end of the first quarter.
Jenna Dagenhart: I’m glad that you mentioned performance. How have high yield munis performed?
Jim Colby: 2018 and 2019 performance for high yield munis has been very strong, and actually into the first two months of 2020, there was a continuation of a condition where demand outstrips supply. The demand for tax-exempt, high-yield income was greater than that of the issuers that bring product to the marketplace to provide. That imbalance created performance opportunity. Prices rose, and yields tended to subside.
Then came March and April. As most everybody knows, those were two very difficult months. We experienced outflows within the product line, both in mutual funds and ETFs, and a sense of concern and/or illiquidity was prevalent during those two months, in no great part due to the concerns about COVID-19, not only domestically, but worldwide. With an economic shutdown of our country, there was concern as to whether or not credit could stand up to the cessation of business activity, and revenues that come in and support the payment of the municipal bond marketplace. So, performance, since that time, the rebound has been strong, and performance is once again back on track, emulating the run that we’ve had in the past two calendar years. Can’t make a prediction, Jenna, where we’ll be at the end of this year, but we certainly have recovered a great deal of ground.
Jenna Dagenhart: Well, Jim, thank you so much for your time. Great to have you.
Jim Colby: Thanks, Jenna. Great to be with you.
Jenna Dagenhart: And thank you for watching. That was Jim Colby, Portfolio Manager and Municipal Strategist at VanEck. I’m Jenna Dagenhart with Asset TV. To receive regular updates from VanEck’s experts, please visit vaneck.com/subscribe.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any discussion of specific securities mentioned in the video is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.
You can lose money by investing in the Funds. Any investment in the VanEck Funds should be part of an overall investment program, not a complete program. VanEck Funds are subject to various risks, including those unique to foreign investing, non-diversification, industry concentration, emerging markets securities, small-cap companies, and debt securities. Please see the prospectus and summary prospectus of each Fund for information on these and other risks.
VanEck Vectors ETFs:
The principal risks of investing in VanEck Vectors ETFs include sector, market, economic, political, foreign currency, world event, index tracking and non-diversification risks, as well as fluctuations in net asset value and the risks associated with investing in less developed capital markets. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. ETFs that invest in high-yield securities are subject to subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities; concentration risk; credit risk; hedging risk; interest rate risk; and short sale risk. ETFs that invest in companies with small capitalizations are subject to elevated risks, which include, among others, greater volatility, lower trading volume and less liquidity than larger companies. Please see the prospectus of each Fund for more complete information regarding each Fund's specific risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs carefully before investing.
Van Eck Securities Corporation, Distributor
666 Third Avenue, New York, NY 10017