By
Gary Gordon
:
So you thought that the biggest fallout over higher taxes for
the wealthy might be the selling of stock assets. Indeed, investors
sitting on monster capital gains in Apple (
AAPL
) have liquidated scores of shares in the culture-changer
company.
Yet a wide variety of riskier categories have held up nicely,
including high yield corporate bonds, preferred stock, dividend
stocks, consumer defensive and consumer cyclical stocks. Any
selling in these categories is more attributable to fiscal cliff
uncertainty than an actual outcome with higher tax rates for
$250,000+ families.
Perhaps ironically, a safer haven area on the risk spectrum has
taken a bit of a recent nose-dive. Muni Bond
ETFs
are experiencing uncharacteristic declines on speculation that U.S.
leaders will agree to reduce income tax breaks on muni debt. (Is
this what Republicans mean by "closing loopholes?")
According to John D. McKinnon and Andrew Ackerman of
The Wall Street Journal
, both political parties consider it reasonable to tax
higher-income households on a portion of municipal bond interest.
Meredith Whitney's "default-gate" notwithstanding, all Muni Bond
ETF investors are currently suffering the consequences of the
proposed changes.
|
Tax Threat Causes 5-Day Slide In The Muni Bond ETF
Space
|
|
|
|
|
|
|
|
|
5-Day % |
|
|
|
|
|
|
|
|
| Market Vectors
Intermediate Muni (
ITM
) |
|
|
-2.9% |
| Market Vectors High
Yield Muni (
HYD
) |
|
|
-2.9% |
| PowerShares Insured
National Muni (
PZA
) |
|
|
-1.8% |
| SPDR Barclays Muni Bond
ETF (
TFI
) |
|
|
-1.5% |
| iShares S&P National
Muni Bond (MUB) |
|
|
-1.4% |
|
|
|
|
|
|
|
|
| iShares Total Bond
Market (AGG) |
|
|
-0.3% |
|
|
|
|
|
|
|
|
Muni Bond ETFs might have continued notching high after 52-week
highs were it not for the recent news report. For instance, SPDR
Nuveen S&P High Yield Muni (HYMB) had been up 8.3% over six
months prior to this week. It has since given up -2.3% in the last
five days.
Keep in mind, part of the muni bond attraction over the last six
months can be traced to the expectation that tax rates on capital
gains and dividends might rise for the wealthy next year. Some
folks clearly shifted assets into tax-exempt municipal bonds. Now,
that tax-exempt status is under fire.
Will curbing exemptions for muni bond interest on the "wealthy"
reduce demand for muni bonds? Will it result in higher borrowing
costs for states and municipalities that are already struggling?
Quite possibly.
My
clients still have an allocation
to exchange-traded muni vehicles like PowerShares Insured National
Muni (
PZA
) and iShares S&P National Muni (MUB). Both remain above
200-day moving averages. In essence, it is more sensible to let the
market trends aid in decision-making rather than speculate on how a
budget agreement may or may not affect Muni Bond ETFs over the
longer term.
(click image to enlarge)
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Disclosure:
Gary Gordon, MS, CFP is the president of Pacific Park Financial,
Inc., a Registered Investment Adviser with the SEC. Gary Gordon,
Pacific Park Financial, Inc, and/or its clients may hold positions
in the ETFs, mutual funds, and/or any investment asset mentioned
above. The commentary does not constitute individualized investment
advice. The opinions offered herein are not personalized
recommendations to buy, sell or hold securities. At times, issuers
of exchange-traded products compensate Pacific Park Financial, Inc.
or its subsidiaries for advertising at the ETF Expert web site. ETF
Expert content is created independently of any advertising
relationships.
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