This article was originally published on ETFTrends.com.
Municipal bonds and the related exchange traded funds are popular with conservative, income-seeking investors and those looking for some tax-advantaged investments.
Munis also help diversify fixed-income portfolios. Investors who typically follow the Barclays U.S. Aggregate Bond Index will not have municipal bond exposure, so a muni bond ETF can complement core fixed-income positions.
Importantly, recent changes to U.S. tax laws do not diminish the allure of muni bonds for income investors. Options to consider among municipal bond ETFs include the VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEArca: ITM) .
“When policymakers introduced them in 1913, they wanted to make sure investors were amply incentivized to participate. To that end, the decision was made to reward muni investors with tax-free income at the federal level and, in many cases, at the state and local levels,” according to ETF Daily News. “For residents of high-tax states such as California, New York, Oregon and others, this feature should be especially appealing.”
Many muni investors feared that President Donald Trump’s big plans for an infrastructure revival would inundate the market with a new supply of municipal debt issuance.
Many were also concerned that Trump’s plans to lower income taxes would weaken the appeal of tax-exempt munis and that the president’s pro-growth agenda would push the Federal Reserve to hike interest rates sooner and faster.
“Healthy inflows so far this year suggest demand for munis remains strong. For the week ended February 21, muni bond funds, including mutual funds and ETFs, took in $347 million of net new money, raising overall net inflows for 2018 to $6.8 billion,” reports ETF Daily News.
History shows that municipal bonds can also help investors endure significant declines in equity markets.
“Municipal bonds have been steady growers not just in times of rising interest rates but also during market downturns. In the past 20 years, the stock market has undergone two massive declines, and in both cases, short-term, investment-grade munis–those carrying an A rating or higher–helped investors stanch the losses,” according to ETF Daily News.
For more information on the munis market, visit our municipal bonds category.
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