Muni Investors: Top 4 Reality Checks
November 03, 2022
Read Time 2 MIN
Here we are in Q4 of 2022, racing toward the end of one of the most difficult years – in recent history – for fixed income investors. We are not alone in expressing this view. But, we are also aware that while it might be the “darkest before the dawn” scenario, we need not rely on old saws to create a reality check for evaluating opportunities. Dawn will likely come before we realize it, so let’s look at 4 reality checks regarding the municipal market to ease possible investor concerns.
Reality #1
As with all fixed income, municipal bonds are influenced by interest rate decisions and guidance by the Federal Reserve (the Fed). As the Fed moves to combat inflation, interest rates rise, and the municipal market follows.
Reality #2
Yes, valuations have sunk, but if you do not sell, you do not experience a loss. The lower value is linked to the increase in rates (interest rate risk) and not a general decline in credit quality (credit risk) in the Municipal market, so there is likely no urgency to sell blindly.
Reality #3
Yields, the marker for returns in fixed income, are now higher for Municipals than at any time in the past 15 years. The performance opportunity can be meaningful.
Reality #4
Since 1965, a down year in the municipal market has been followed by at least one year (or several) of positive returns1.
As the Fed’s behavior adds volatility to the municipal market, we believe the long-term prospects remain steady. The eventual return of municipal market performance is likely indisputable; the only question is when. While we await dawn, the realities above keep us warm.
VanEck offers eight municipal bond strategies for a wide variety of investors.
| Investment | Ticker | Closing Price | YTD Total Return | 30-Day Yield | Assets (mil) |
| VanEck CEF Muni Income ETF | XMPT | $19.94 | -30.03% | 5.86% | $131 |
| VanEck High Yield Muni ETF | HYD | $48.99 | -19.26% | 4.91% | $2600 |
| VanEck Long Muni ETF | MLN | $16.35 | -23.15% | 4.33% | $206 |
| VanEck Short High Yield Muni ETF | SHYD | $21.66 | -11.82% | 4.21% | $405 |
| VanEck HIP Sustainable Muni ETF | SMI | $43.34 | -12.64% | 3.58% | $17 |
| VanEck Intermediate Muni ETF | ITM | $43.55 | -14.01% | 3.52% | $1600 |
| VanEck Short Muni ETF | SMB | $16.60 | -6.21% | 3.05% | $333 |
Source: VanEck. As of 10/28/22. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Please click here for standardized performance current to the most recent quarter ended.
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IMPORTANT DISCLOSURES
1 Municipal Market Advisors 10-Year Total Rate of Return Index.
An investment in the Funds may be subject to risks which include, among others, 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, general obligation bond, health care bond, water and sewer bond, special tax bond, transportation bond, private activity bond, sampling, index tracking, replication management, 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, performance of underlying funds’ investments, leverage, 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.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this email.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax 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. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Municipal bonds may be less liquid than taxable bonds. A portion of the dividends you receive may be subject to the federal alternative minimum tax (AMT). There is no guarantee that municipal bonds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax 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. When interest rates rise, bond prices fall.
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 ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck ETFs carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
IMPORTANT DISCLOSURES
1 Municipal Market Advisors 10-Year Total Rate of Return Index.
An investment in the Funds may be subject to risks which include, among others, 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, general obligation bond, health care bond, water and sewer bond, special tax bond, transportation bond, private activity bond, sampling, index tracking, replication management, 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, performance of underlying funds’ investments, leverage, 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.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this email.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax 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. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Municipal bonds may be less liquid than taxable bonds. A portion of the dividends you receive may be subject to the federal alternative minimum tax (AMT). There is no guarantee that municipal bonds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax 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. When interest rates rise, bond prices fall.
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 ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck ETFs carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.