Munis: Utility And Sensibility

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Includes: AFB, BAF, BBF, BBK, BFK, BKN, BLE, BSD, BYM, CXH, DMB, DMF, DSM, DTF, EIM, EIV, EOT, EVN, EXD, FMB, FMN, IIM, IQI, KSM, KTF, LEO, MEN, MFL, MFM, MFT, MHD, MMU, MNP, MQT, MQY, MUA, MUB, MUE, MUH, MUS, MVF, MVT, MYD, MYF, MYI, MZF, NAD, NEA, NEV, NHA, NIM, NMI, NUV, NUW, NVG, NXP, NXQ, NXR, NZF, OIA, PMF, PML, PMM, PMO, PMX, PRB, PVI, PZA, RVNU, TFI, VFL, VGM, VKI, VKQ, VMO, VTEB, XMPT
by: VanEck

I believe it is important for investors to step back from time to time, away from "the maddening crowd," and judge what is happening and how one is reacting to the markets from day to day. Why? Because it is human nature to get swept up by the volatility and excitement that the modern information age can offer, and in those instances we might lose sight of the pathways to the goals we set.

As we've moved into the second quarter of the year and nearer to the April 15 tax filing deadline, I want to make some simple points about the municipal bond asset class and the way it may behave going forward.

Although it is tempting to think of municipal bonds as a trading vehicle similar to corporate bonds, I suggest that it is better to view municipals as part of a long-term approach to portfolio construction that is geared to capture the potential benefits of tax exemption and relative value. Munis have remained resilient despite the impact of various headlines (Detroit, Puerto Rico) and their taxable equivalent returns have often rivaled - if not trumped - those of other asset classes.

Secondly, it is important to understand that seasonal shifts in supply and changes in the yield curve can impact a municipal bond's total return and present investors with tactical opportunities. For the first quarter, according to Barclays, their Municipal Bond Index returned a positive 1.67%. Taking into consideration the seasonal supply/demand trends that have prevailed during the second quarter for the last 15 years suggest that favorable entry points may potentially become available. It may make sense for investors to consider remaining in tactical allocations to certain ETFs, for example, that are designed to capture pricing opportunities.

I recently discussed these factors in a webcast entitled, "Muni ETFs: the Potential Solution for Today's Wild Markets." For a more in-depth analysis of the current landscape for municipal bonds and municipal bond ETFs in particular, please listen to the replay (registration required).

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