Muni Funds Stand Out in Fixed-Income Space

By Max Chen, ETF Trends

In the fixed-income market, investors may find that municipal bonds and related exchange traded funds are a more attractive play than Treasuries or corporate debt.

“Overall, municipal bonds maintain their high-quality appeal and continue to look attractive versus both Treasuries and corporate bonds,” according to BlackRock. “We’re seeing competitive yields on a before-tax basis—which only further illuminates the after-tax value.”

Moreover, the BlackRock strategists point out a couple of factors that continue to support the munis market: high demand, relatively low supply, tax-season-inspired appreciation for the tax-exempt status and improving credit among states and local issuers.

Nevertheless, potential investors should still be aware that bond prices could fall as rates rise, even though investors saw benchmark 10-year Treasury yields drop about 25 basis points at the start of the year.

“This does not take away from munis’ appeal as an attractive source of tax-advantaged income, but it does suggest that a diversified and unconstrained approach is a smart call in the tax-exempt space as well,” the BlackRock strategists added.

BlackRock suggests investors with higher taxes should add munis to garner attractive income yields.

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The D2 Capital Management Tax Free Income Portfolio is currently yielding 4.88% (Trailing 12 month Tax Equivalent Yield at 28% Tax Bracket, as of 7 April 2014).

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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