As of right now this is at a 3% premium to its true value. THAT IS EQUIVALENT TO A FULL YEAR OF MUNI RETURNS! First I switched into TFI (PZA also looks good) but now it's probably time to short MUB as well. Only a matter of time until some big holder either switches to an ETF or has new shares created and dumps them on the market. You were forewarned...there are plenty of other liquid ways to get muni exposure without paying up.
We Love This ETF: Sell It Now The largest muni-bond ETF is trading at an exploitable premium. PrintCommentRecommend (2) By Timothy Strauts | 02-22-12 | 06:00 AM | E-mail Article Something strange appears to be going on with municipal-bond exchange-traded funds. The two largest ETFs in the category have had very different performances for the year to date. IShares S&P National AMT-Free Municipal Bond (MUB) has returned 4.90% this year. Its main competitor, SPDR Nuveen Barclays Capital Municipal Bond (TFI), has returned only 2.19%. Both ETFs track investment-grade municipal bonds, have similar yields and durations, and have fees that are within 2 basis points. From a holdings perspective, the only material difference is the slightly higher credit quality of TFI, but even that difference is negligible. [......] I am an advocate for well-constructed funds, so it pains me to say this:
It's time to part ways with MUB.
This recommendation has nothing to do with our outlook for the muni-bond market. It just boils down to returns.
MUB has been trading at a Substantial Premium to its net asset value lately, a phenomenon more frequent in closed-end funds than in the ETF marketplace.
However, TFI is still consistently trading near its NAV. So, if the fund characteristics are so similar yet one is trading at fair value and the other is trading at a 3% to 4% premium, why wouldn't you swap them? The premium is almost double the current SEC yield of approximately 2%.
You make a good point, I noticed the 3% premium. But I don't short stocks, and I don't want to incur the capital gains. So I guess I will sell a little more MUB (I sold at 110 the first time). Lighten up when it's up, buy in little by little when it's down, that's my simple but effective investment strategy.
Haha. Not saying short munis. Just MUB. I have a pair trade on - long TFI, short MUB. would you ever walk up to someone and hand them $103 for a $100 bill? That's what you are doing with MUB. TFI is happy to sell you their $100 bill for $100.