Even with recent tax law changes, the need for tax-exempt municipal bond portfolios remain significant. Although the top tax bracket has been lowered to 37%, a broad high investment grade municipal portfolio can provide yields of close to 3% on a taxable equivalent basis. Also, these securities can deliver significantly better credit diversification with an equity portfolio than corporate bonds.
Historically, municipal portfolios have been troublesome for financial advisors to manage. Owning a set of individual bonds is very problematic:
Although owning individual mutual funds solve many of these problems, others are entailed:
Steps to Better Manage Tax-Exempt Bond Portfolios
With the advent of 21st century investment products and processes, advisors can create municipal portfolios in a wiser manner. There are five steps to take to do so:
TICKER | FUND NAME | ISSUER | EXPENSE RATIO | AUM | SPREAD % |
MUB | iShares National Muni Bond ETF | BlackRock | 0.25% | $9.37B | 0.01% |
SUB | iShares Short-Term National Muni Bond ETF | BlackRock | 0.25% | $1.52B | 0.03% |
CMF | iShares California Muni Bond ETF | BlackRock | 0.25% | $833.85M | 0.07% |
NYF | iShares New York Muni Bond ETF | BlackRock | 0.25% | $285.18M | 0.08% |
IBMI | iShares iBonds Sep 2020 Term Muni Bond ETF | BlackRock | 0.18% | $234.03M | 0.10% |
IBMH | iShares iBonds Sep 2019 Term Muni Bond ETF | BlackRock | 0.18% | $231.55M | 0.12% |
IBMG | iShares iBonds Sep 2018 Term Muni Bond ETF | BlackRock | 0.18% | $214.53M | 0.12% |
IBMK | iShares iBonds Dec 2022 Term Muni Bond ETF | BlackRock | 0.18% | $163.75M | 0.12% |
IBMJ | iShares iBonds Dec 2021 Term Muni Bond ETF | BlackRock | 0.18% | $162.58M | 0.14% |
MEAR | iShares Short Maturity Municipal Bond ETF | BlackRock | 0.25% | $59.75M | 0.10% |
IBML | iShares iBonds Dec 2023 Term Muni Bond ETF | BlackRock | 0.18% | $31.32M | 0.13% |
RVNU | Xtrackers Municipal Infrastructure Revenue Bond ETF | Deutsche Bank | 0.30% | $60.41M | 0.42% |
FMB | First Trust Managed Municipal ETF | First Trust | 0.50% | $265.74M | 0.13% |
FMHI | First Trust Municipal High Income ETF | First Trust | 0.55% | $20.16M | 0.38% |
MCEF | First Trust Municipal CEF Income Opportunity ETF | First Trust | 1.91% | $13.05M | 0.47% |
FCAL | First Trust California Municipal High Income ETF | First Trust | 0.50% | $10.14M | 0.52% |
FLMB | Franklin Liberty Municipal Bond ETF | Franklin Templeton | 0.30% | $7.43M | 0.30% |
FLMI | Franklin Liberty Intermediate Municipal Opportunities ETF | Franklin Templeton | 0.30% | $7.41M | 0.29% |
HMOP | Hartford Municipal Opportunities ETF | Hartford | 0.35% | $9.97M | — |
MMIT | IQ MacKay Shields Municipal Intermediate ETF | IndexIQ | 0.30% | $29.91M | 0.16% |
MMIN | IQ MacKay Shields Municipal Insured ETF | IndexIQ | 0.30% | $15.01M | 0.16% |
PZA | PowerShares National AMT-Free Municipal Bond Portfolio | Invesco PowerShares | 0.28% | $1.60B | 0.05% |
PWZ | PowerShares California AMT-Free Municipal Bond Portfolio | Invesco PowerShares | 0.28% | $242.29M | 0.24% |
PVI | PowerShares VRDO Tax-Free Weekly Portfolio | Invesco PowerShares | 0.25% | $84.75M | 0.08% |
PZT | PowerShares New York AMT-Free Municipal Bond Portfolio | Invesco PowerShares | 0.28% | $66.98M | 0.28% |
MUNI | PIMCO Intermediate Municipal Bond Active ETF | PIMCO | 0.35% | $272.57M | 0.20% |
SMMU | PIMCO Short Term Municipal Bond Active ETF | PIMCO | 0.35% | $67.96M | 0.33% |
SHM | SPDR Nuveen Barclays Short Term Municipal Bond ETF | State Street Global Advisors | 0.20% | $3.50B | 0.02% |
TFI | SPDR Nuveen Barclays Municipal Bond ETF | State Street Global Advisors | 0.23% | $2.62B | 0.03% |
HYMB | SPDR Nuveen S&P High Yield Municipal Bond ETF | State Street Global Advisors | 0.45% | $539.93M | 0.17% |
HYD | VanEck Vectors High-Yield Municipal Index ETF | VanEck | 0.35% | $2.22B | 0.04% |
ITM | VanEck Vectors AMT-Free Intermediate Municipal Index ETF | VanEck | 0.24% | $1.77B | 0.04% |
SMB | VanEck Vectors AMT-Free Short Municipal Index ETF | VanEck | 0.20% | $236.46M | 0.11% |
MLN | VanEck Vectors AMT-Free Long Municipal Index ETF | VanEck | 0.24% | $180.35M | 0.21% |
SHYD | VanEck Vectors Short High-Yield Municipal Index ETF | VanEck | 0.35% | $118.14M | 0.23% |
XMPT | VanEck Vectors CEF Municipal Income ETF | VanEck | 1.59% | $99.57M | 0.18% |
PRB | VanEck Vectors Pre-Refunded Municipal Index ETF | VanEck | 0.24% | $14.63M | 0.33% |
VTEB | Vanguard Tax-Exempt Bond ETF | Vanguard | 0.09% | $2.14B | 0.02% |
CUMB | Virtus Cumberland Municipal Bond ETF | Virtus | 0.59% | $17.77M | 0.71% |
Source: ETF.Com, 12/22/2017
Even in the closed-end space, expense ratios can be as low as 27 basis points. The advantages of adding some closed-end funds to the portfolio include:
As an alternative to creating these effective municipal bond portfolios themselves, advisors can take advantage of separately managed accounts (SMAs) of these funds available from leading investment managers directly, or on brokerage and third-party platforms. Utilization of these SMAs can often take place at fees lower than mutual funds, increase transparency to advisors and clients, and allows the advisor to spend more time on client servicing and marketing.
iSectors® Tax-Wise Income Allocation Fundamentals
The iSectors Tax-Wise Income Allocation is a model portfolio strategically managed for tax sensitive investors seeking income for their portfolio. This SMA Allocation invests in:
The portfolio’s average duration is expected to be between 4.0 and 6.0. This high-quality strategy has an average credit rating of AA, 40% of the portfolio is rated AAA and 98% of the securities are investment grade.
Advisors that wish to expose client portfolios to diversified, low-cost, transparent and liquid tax-exempt holdings with attractive yields should consider the iSectors Tax-Wise Income Allocation!
If you are a financial advisor that wishes to learn more about effective methods for tax-exempt investing, please contact Scott Jones at 800-869-5184 or [email protected]. Alternatively, you may wish to register on our website www.isectors.com to review information on the Tax-Wise Income Allocation.
Individual investors can contact Scott Jones for a referral to a recommended iSectors advisor that can help you determine the best iSectors asset allocation for their portfolios.
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