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Muni ETFs just posted record inflows. Jim Colby on why low volatility, strong risk-adjusted returns, and tax-advantaged yields keep drawing investors in.
SHYD is a short-term municipal bond index ETF. Although its income is tax-exempt, it only yields 3.5%. For most investors, other funds offer much higher after-tax yields. Alternatives include BOXX and HYD, both with higher yields and returns.
SHYD targets short-term, lower-rated municipal bonds for higher yield, benefiting high-tax-bracket investors with federal tax-free income. The fund carries some liquidity and credit risk, but municipal default rates are historically very low, and the management fee is reasonable. SHYD has consistently underperformed its benchmark, and alternative funds like BYM or USFR offer better yields with similar or lower risk.
Compare corporate and municipal bonds, including risks, returns, and tax benefits. Learn which bond type fits your investment goals.
Yields have reset higher across fixed income markets, leaving bonds well positioned in a range of different economic and interest rate scenarios in 2024. Introduction to Income Investing Income investing is a strategy that aims to generate a steady stream of income from investments, typically through interest payments or dividends.
A reader asked for short-term municipal bond ETFs. SHYD is one such fund, focusing on high-yield muni bonds. The fund has tax-advantaged dividends, low credit, and interest rate risk.
Investors should consider the opportunities in the municipal bond market and turn to related exchange traded fund strategies to diversify back into this fixed income category.
With aggregate bond indexes flailing this year at the hands of rising interest rates, fixed income investors are understandably frustrated and wary about the asset class at large. However, this year's turbulence could be giving way to opportunities in the bond market, including with municipal bonds.