Well as a retiree who lost a major part of his savings in 401k during 2007-2008, I am very cautious – maybe over cautious. Rates may not rise very soon if I listen to Ben Bernanke, but again there is no guarantee that he or his follower doesn’t change the policy if they see it as required. So I need to be alert. Hedging through ETF which short treasuries is a good idea. I will consider to start buying TBT and add to my position overtime. Taxing of dividends from municipal bonds would reduce the income of many retirees who have already lost a portion of their savings. I can only hope that they don't mess with munis.
I don't think rising interest rates should be of too much concern anytime soon with the Fed making it clear they will continue to do what they can to keep rates down. To protect against rising rates I have hedged by buying a little of an ETF which shorts treasuries and goes up when rates go up. The danger to the price of MAV and other Muni ETF's is the talk of reducing the tax exemption fo Mun's. The odds of this are about 30% according to most analysts of some reduction being passed in the future. I'm willing to bet against any major reduction being passed for now.
I have both MAV and MHI since 2011 when their prices were around $13. Since then I added to my positions when the prices dropped sharply. The tax fee dividend was a good portion of my income and the principal has gown over 10%. But now, I am getting concerned about upcoming rising rates.
MAV has been a good fund for me also but you need to take a closer look at the financials. For the last year MAV's NII has averaged .078 versus a dividend of .095. That has not been too much cause for concern since MAV had a large reserve of undistributed net investment income. However that reserve has gone from .68 to .389 to .279 as of their last financial report. You might want to lighten up on MAV and consider buying some MHI which is covering its dividend. As good as MAV has been, things change and the financials don't lie. If the current trend continues look for MAV to reduce its dividend to .08 or .078 just after its next financial report.
As I expected the Tax exemption for muni interest remains safe for 2013. Now with the higher tax rates MAV is a great buy even in the high 15's. In my experience and as one of my advisors in a recent article stated it sometimes does no good to look at lengthy analysis of fundamental issues when at the end of the day it is about whats going on in the market and what the market is saying. The market has been saying high yield muni ETFs like MAV still has legs in this perfect storm for Munis.
MAV closes the year above $15 as I expected and will continue to trade above $15 in 2013. There will be temporary dips to $14 when talk of amending the tax benefits of Muni's scare investors but we could also see a spke above $16 when these fears are resolved. My other Muni investments have done well over the years but MAV has been my best high yield Muni investment.
Sentiment: Strong Buy