MarkGillCPA

James Colby: Muni ETFs Gain Assets in Face of Credit Crisis

Good point by donzelion. If you live in a state with a state income tax, you're generally looking for a state-focused muni bond fund to minimize taxes, but which in turn exposes you to state specific risk.

However, for those of us in states with no state income tax, we can buy muni funds and ETFs that are nation-wide.

ITM looks pretty good. Should I be concerned that it holds only 97 positions and has only $39 million in assets?

I have been buying FHIGX (Fidelity Muni Income) for clients. It's up 3.68% YTD. Holds over one thousand bonds, has a 44 basis point expense ratio and has a 30-day yield of 4.30% as of 3-5-09. For someone in the 25% tax bracket, that's a tax-equivalent yield of 5.73%.

However, note that FHIGX is able to offer a higher yield by going down one step in quality. Instead of holding a large percentage of AAA bonds as ITM does, it holds a larger percentage of AA and A bonds. In that sense FHIGX is riskier than ITM.

Good article. Thanks.