A Risk-Averse Approach to Municipal Bonds

12/25/2019 5:00 am EST

Focus: BONDS

Robert Powell

Editor, TheStreet.com's Retirement Daily

Robert Powell — editor of TheStreet's Retirement Daily — often reviews exchange-traded funds for those saving for or living in retirement; in his latest issue, he looks at new ETF that gives exposure to the municipal bond market.

Creating a mutual fund comprising several other mutual funds, also called a fund-of-funds, has long been a staple of the mutual fund universe, says Lou Conrad of COMPASS Wealth Management in Concord, Mass. "Life-cycle, target-date, and asset-allocation-type funds often use this structure," he says.

VanEck has introduced an ETF comprising multiple municipal bond ETFs — the VanEck Vectors Municipal Allocation EFT (MAAX). The ETF actively manages duration and credit risk through the use of a quantitative model, which uses momentum and macroeconomic factors.

Conrad sees this ETF as an attempt to manage the volatility that is more prevalent in the capital markets lately, including the tax-exempt market, through tactical allocations between the underlying ETFs.

"These varying allocations can adjust MAAX's credit and duration risk depending on the environment," Lou Conrad says.

He adds, "Like many new ETFs, investors may want to monitor the performance of the fund for a period of time before investing, but the stated approach of MAAX could be helpful to municipal bond investors, who often are a risk-averse group."

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