Displaying items by tag: munis

Fidelity Investments recently announced it was adding to its active fixed-income strategies lineup with the launch of the Fidelity Municipal Core Plus Bond Fund (FMBAX). According to Fidelity, FMBAX is available commission-free and with no investment minimum to individual investors and financial advisors through Fidelity’s online brokerage platforms. The fund has a 0.37% net expense ratio and a 1.28% gross expense ratio. FMBAX is measured against the Bloomberg Municipal Bond Index and the Fidelity Municipal Core Plus Bond Composite Index, and aims to provide a high current yield exempt from federal income taxes, and may also consider capital growth. Co-managers Cormac Cullen, Michael Maka, and Elizah McLaughlin will analyze the credit quality of the issuer, security-specific features, current and potential future valuation, and trading opportunities to select investments. The fund launch comes at a time when the retail and institutional demand for higher-yielding municipal bond funds is growing. According to the fund giant, this new product seeks to offer a strong yield and total return profile, with potentially lower volatility than pure high-yield funds. Jamie Pagliocco, Fidelity’s fixed income head has this to say about the fund launch, “Fidelity’s growing suite of active fixed income investment products leverage Fidelity’s breadth and depth of resources and expertise as an active manager to identify investment opportunities across the credit spectrum.”

Finsum:Fidelity Investments launched an active municipal bond mutual fund amid increased retail and institutional demand for higher-yielding municipal bond funds.

While many investors kept cash on the sidelines last year, that should change this year, according to Goldman Sachs. Ashish Shah, chief investment officer of public markets at Goldman Sachs says “A lot of investors last year were frozen because of the volatility and uncertainty. As that uncertainty narrows, it’s really important for investors to take action.” Shah believes the Fed is closer to the end of the rate-hike cycle than it is to the beginning and rising inflation has begun to slow. With that in mind, Goldman is suggesting that now is the time to add duration to a portfolio through fixed income. Shah says “Cash in the portfolio of investors is still incredibly high. What we’re advocating [is that investors should] come out of cash in the bank and go into the market and capture some of this yield.” He added that while bonds are generating income, they also can rally even further than they already have. However, selection matters more now than it used to. According to Shah, investment-grade credit and municipal bonds with longer durations could be effective in achieving portfolio goals. He also noted that lower-quality muni bonds also have room to generate attractive yields and they’re tax-exempt.

Finsum:Goldman Sachs CIO Ashish Shah believes that now is the time to put cash to work in investment grade credit and municipal bonds as the Fed is nearing the end of its tightening cycle and inflation is starting to slow.

According to Vanguard, investors that allocated part of their portfolios to low-yielding municipal bonds at the beginning of last year should now be looking forward to the prospect of higher income, thanks to a rapid rise in rates. In a fixed-income report for the first quarter, the fund firm wrote, “Following a year with $119 billion of outflows from municipal funds and ETFs, we expect the tide to turn. For high-income taxable investors, we are expecting a municipal bond renaissance.” According to the report, muni bonds only offered yields of around 1% at the start of 2022, compared to yields that now exceed 3% before adjusting for tax benefits. Tax-equivalent yields are at 6% or even “meaningfully higher for residents in high-tax states who invest in corresponding state funds.” Vanguard said that this makes munis a “great value compared with other fixed income sectors and potentially even equities—especially with the odds of a recession increasing.” According to the Vanguard report, muni bonds also remain strong from a credit perspective, with attractive spreads over comparable U.S. Treasurys and corporate debt. In fact, municipal balance sheets are stronger now than they’ve been in two decades, leaving states well-prepared to navigate an economic slowdown.

Finsum:According to Vanguard, higher yields and solid balance sheets make muni bonds a highly attractive option for investors this year.

JPMorgan Asset Management recently announced that it plans to convert four of its mutual funds into ETFs, pending fund board approval. This includes three municipal mutual funds. The firm plans to switch all share classes of the Limited Duration Bond, High Yield Municipal, Sustainable Municipal Income, and Equity Focus fund. If approved at a meeting scheduled for February, the funds will be converted to actively managed transparent ETFs in July. The JPMorgan Limited Duration Bond fund invests mainly in mortgage-backed or mortgage-related securities that it believes will perform well over market cycles. The JPMorgan High Yield Municipal fund is designed to deliver a high level of current income exempt from federal income taxes. The JPMorgan Sustainable Municipal Income fund is designed to deliver current income exempt from federal income taxes by investing in municipal bonds with the use of proceeds that provide positive social or environmental benefits. According to the firm's announcement, the new ETFs will mainly have the same investment strategies as the mutual funds. JPMorgan was one of the first companies to convert active mutual funds into ETFs with the Inflation Managed Bond ETF conversion taking place in April.

Finsum:JPMorgan announced that it plans to convert three active municipal bond funds into actively managed transparent ETFs in July.

It appears that the growing adoption of model portfolios is driving inflows into municipal ETFs. In fact, this year’s inflows to muni ETFs are double the average of the last three years, with total assets sitting at $105 billion. Investors added a record $27.8 billion into muni-bond ETFs this year. Mutual funds, on the other hand, lost more than $130 billion. According to estimates by Drew Pettit, director of ETF analysis and strategy at Citigroup Inc, nearly half of the inflows came from mutual fund holders selling shares at a loss to offset gains and swapping into ETFs. The continued adoption of model portfolios by advisors should contribute to even more muni ETF growth. In an article on WealthManagement.com, it was noted that model managers such as FMR LLC’s Strategic Advisers, Wealthfornt Advisors, and Creative Planning are some of the largest holders of Vanguard and Blackrock muni ETFs. Pettit indicated that advisors like automated, off-the-shelf products which allow them to focus more on client relationships and growing their business. In a recent interview he stated that “When model portfolios get their teeth into an ETF or a group of ETFs, you start to see this stable, almost constant, drip of money coming into these products. And it’s really hard to unseat that.”

Finsum:Muni Bond ETFs saw a record $27.8 billion in inflows this year as a result of the growing adoption of model portfolios by financial advisors.