Several muni ETFs from outside of the top 12 are worth pointing out: The iShares New York Muni Bond ETF (NYF), the PIMCO Intermediate Municipal Bond Active ETF (MUNI), the SPDR Nuveen Barclays California Municipal Bond ETF (CXA), the First Trust Managed Municipal ETF (FMB) and the VanEck Vectors AMT-Free Long Municipal Index ETF (MLN) have lower correlations than most with attractive dividend yields.
In addition, the VanEck Vectors CEF Municipal Income ETF (XMPT) has been able to generate higher dividend yields and impressive total returns, but keep in mind that the leveraged closed-end muni bond funds in which XMPT invests have very long durations, so XMPT will show a very high sensitivity to changes in interest rates; hence, the strong recent performance given the current rate environment.
|Ticker||Fund||AUM||3-Mo Return||1-Year Return||Dividend Yield||Duration||Credit Quality||YTM||Corr to SPY||Corr Rank||YTD Net Flows thru 7-28-16|
|MUB||iShares National Muni Bond ETF||$7,390.0||1.79%||6.57%||2.33%||5.47||AA-||2.60%||-0.55||6||$1,290.2|
|PZA||PowerShares National AMT-Free Municipal Bond Portfolio||$1,390.0||2.29%||8.43%||3.31%||6.64||AA-||3.72%||-0.41||15||$380.3|
|HYD||VanEck Vectors High-Yield Municipal Index ETF||$2,210.0||3.12%||11.52%||4.37%||7.15||B+||5.13%||-0.22||25||$375.0|
|TFI||SPDR Nuveen Barclays Municipal Bond ETF||$1,990.0||2.03%||7.89%||1.43%||6.76||AA||2.52%||-0.67||1||$332.4|
|VTEB||Vanguard Tax-Exempt Bond Index Fund ETF||$401.3||1.84%||--||--||5.47||AA-||2.62%||-0.58||2||$250.7|
|BAB||PowerShares Build America Bond Portfolio||$990.4||6.21%||14.25%||4.17%||9.64||A+||4.27%||-0.58||3||$246.5|
|SHM||SPDR Nuveen Barclays Short Term Municipal Bond ETF||$3,000.0||0.71%||1.98%||0.62%||2.82||AA||1.00%||-0.45||10||$239.5|
|ITM||VanEck Vectors AMT-Free Intermediate Municipal Index ETF||$1,540.0||1.89%||8.45%||2.19%||6.65||AA-||2.60%||-0.58||4||$166.4|
|CMF||iShares California Muni Bond ETF||$618.0||1.63%||6.53%||2.29%||5.73||AA-||2.58%||-0.57||5||$138.0|
|SUB||iShares Short-Term National Muni Bond ETF||$1,060.0||0.42%||1.33%||0.76%||1.91||AA||0.96%||-0.28||22||$84.9|
|HYMB||SPDR Nuveen S&P High Yield Municipal Bond ETF||$507.0||3.46%||11.49%||4.24%||6.85||B+||5.13%||-0.39||16||$77.1|
|MLN||VanEck Vectors AMT-Free Long Municipal Index ETF||$182.3||3.08%||11.14%||3.03%||9.25||A+||3.72%||-0.44||13||$60.0|
|XMPT||VanEck Vectors CEF Municipal Income ETF||$112.9||5.03%||22.65%||4.72%||--||--||--||-0.22||26||$44.9|
|FMB||First Trust Managed Municipal ETF||$78.3||2.46%||8.74%||2.93%||6.28||BBB||3.24%||-0.45||11||$34.3|
|NYF||iShares New York Muni Bond ETF||$240.4||1.67%||6.52%||2.46%||5.26||AA-||2.70%||-0.50||7||$34.1|
|CXA||SPDR Nuveen Barclays California Municipal Bond ETF||$149.0||2.19%||8.78%||2.26%||7.22||AA||2.60%||-0.47||9||$32.3|
|MUNI||PIMCO Intermediate Municipal Bond Active ETF||$256.3||1.60%||6.16%||2.26%||4.69||A||2.12%||-0.49||8||$13.7|
It is generally imprudent to try to time interest rates. The best course of action is to understand your specific goals and select the muni ETFs that best fit your goals. Read How to Pick the Right Muni ETF to better understand how to use duration and credit quality when selecting a muni ETF.
When fitting a muni ETF into your portfolio strategy, also consider how well it can be expected to diversify your existing holdings. The more your fixed-income ETF is correlated to your equity risk exposure, the larger your allocation to bonds will need to be to achieve the desired diversification.
Below is a graph of the universe of muni ETFs compared to the benchmark triple-A yield curve, provided courtesy of Municipal Market Analytics.
For a larger view, please click on the image above
Patrick Luby is a municipal bond portfolio strategy specialist and the author of www.IncomeInvestorPerspectives.com. He will be a speaker at the Inside ETFs Inside Fixed Income Conference in Newport Beach, California, Nov. 2-3.
At the time of writing, the author held none of the securities referenced. This is not a recommendation to buy, sell or hold any of the securities or strategies mentioned. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Information is based on sources believed to be reliable, but its accuracy is not guaranteed. Additional information is available upon request.