As an asset class, municipal bonds have had plenty of negative
headlines to deal with in the past several years. There was the
credit crisis of 2008 and the ensuing recession of 2009-2010.
Last year, noted analyst Meredith Whitney was featured on "60
Minutes," warning of impending doom in the muni bond market.
Also in 2011, Jefferson County, Alabama and Harrisburg,
Pennsylvania, the Keystone State's capital, defaulted on muni
bond obligations. Stockton, California followed suit earlier this
year. Speaking of California, the largest U.S. state by GDP and
population, is running deficits that have some pondering further
But just as they did in 2011
muni bond ETFs are defying logic in 2012,
offering not only solid returns, but a valid avenue for investors
looking to do some retirement planning
"Despite low interest rates, munis will continue to draw
appeal among baby boomers because they prefer the low volatility
compared to other asset classes," James Colby, portfolio manager
and senior municipal strategist for Market Vectors municipal bond
investments, said in an interview with Benzinga. "Munis continue
to come through the crucible and they're no worse for the
Part of the allure municipal bond ETFs hold for retirees is
their steady, tax-free income stream. All six Market Vectors muni
bond ETFs pay monthly dividends. The $3 billion iShares S&P
National AMT-Free Municipal Bond Fund (NYSE:
) also features a monthly distribution. The monthly payout
highlights one advantage of an ETF over owning an individual muni
"If you buy an individual bond, you get a semi-annual coupon
payment," Colby noted. "With muni bond ETFs, you get monthly
dividends that are tax exempt and that's an appealing feature for
Arguably, the default risk in the muni bond market is
overstated. Colby notes muni bonds are a $3.7 trillion
marketplace, but only 2% of that number trades on any given
"Less than half of 1% of all rated bond issue default,"
according to Colby. "We will continue to see entities run into
great difficulties, but the muni bond market has a great ability
to compartmentalize the problem children. One default doesn't
provide for contagion across other issues."
Investors seem to be buying into that, having added $11.4
billion to U.S. municipal mutual funds this year, the best start
Bloomberg reported citing Lipper data
Along those lines, the Market Vectors Long Municipal Index ETF
) has risen 6% this year despite
a heavy allocation to issues from
. Low fees of 0.24%, a trailing 12-month yield of almost 4.2% and
a monthly dividend make this fund a compelling retirement
"There are a lot of headlines touting negativity in the muni
bond marketplace, but this hasn't sent investors scurrying away
from the asset class," said Colby.
Colby also noted "a huge mismatch between supply and demand"
in the high yield space, a catalyst that helps explain why the
Market Vectors High-Yield Muni ETF (NYSE:
) is up almost 9% this year.
With $604.4 million in AUM, a 0.35% expense ratio and a
trailing 12-month yield of almost 5.3%, HYD has outperformed more
noteworthy bond ETFs by significant margins this year, including
the Vanguard Total Bond Market ETF (NYSE:
), the PIMCO Total Return ETF (NYSE:
) and the iShares Barclays TIPS Bond (NYSE:
Other muni bond ETFs suitable for retirement include the
Market Vectors Intermediate Muni ETF (NYSE:
), the Market Vectors Pre-Refunded Muni ETF (NYSE:
) and the SPDR Nuveen Barclays Capital Municipal Bond ETF (NYSE:
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