Advisors Like the New Spin on Muni Bond ETFs

ETF Trends

There are more than 20 exchange traded funds offering investors exposure to municipal bonds, which at the end of the first quarter represented over $3.7 trillion, or 9.6%, of the total U.S. bond market.

Many of the largest muni bond ETFs, such as the iShares S&P National AMT-Free Muni Bond ETF (MUB) and the SPDR Nuveen Barclays Municipal Bond ETF (TFI) are heavily allocated to general obligation (GO) bonds, or those bonds that are backed by the credit and taxing ability of a city or state. [Muni Bond ETFs Shift Gears in 2013]

At a time when some of the largest U.S. states, including California and Illinois, are awash in massively under-funded public employee pension obligations, some investors are looking to diversify away from GO bonds while still keeping exposure to munis.

The newly minted db X-trackers Municipal Infrastructure Revenue Bond Fund (RVNU) is the ETF that offers investors diversification away from GO munis. RVNU is the first ETF to focus exclusively on revenue bonds, or those munis that are supported by revenue from projects such as toll roads or bridges. [Deutsche Bank's Expanding ETF Presence]

RVNU debuted in early June, but the fund’s rookie status has not stopped some advisors from embracing it right out of the gate.

“We’ve been buying RVNU fairly actively since September,” said Christian Wagner of Delaware-based Longview Capital in an interview with ETF Trends.

Wagner noted that not only are the yield traits of munis currently favorable relative to taxable bonds, but also that RVNU’s relative returns based on the fund’s volatility are too compelling to ignore. RVNU is up 3.7% in the past month, more than double what MUB has returned over the same time.

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