Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

A Muni Fund Still Worth Your Money


In a sluggish economy, it can be pretty risky putting your money in municipal bonds given the state of many state and local economies...but this exchange-traded fund continues to perform well.


Municipal bonds as an asset class haven't gotten much love over the past couple of years. Every presi-dential campaign season, they become a favorite whipping boy of politicians looking to raise revenue.

After banking analyst Meredith Whitney predicted a "tidal wave of de-faults" in late 2010, investors rushed for the exits and pulled close to $50 billion out of municipal bond funds in just a few months.

Some of that money has trickled back into municipals this year, as investors were lured by attractive tax-exempt yields and solid credits despite a few well-publicized bankruptcies. However, that trend is breaking down again, after both Barack Obama and Mitt Romney during this year's race for the White House proposed increasing government revenue by eliminating the tax-exempt status of municipal bonds.

Best Buy: Market Vectors

Although heated political rhetoric has created uncertainty for municipal bonds, Market Vectors Intermedi-ate Municipal ETF (NYSEARCA:ITM) is a solid buy at current prices.

While both presidential candidates were probably earnest in their propos-als, this isn't the first time muni bonds have found themselves under a threat that's probably hollow. This discussion comes up almost every time a budget bill wends its way through the halls of Congress, but nothing ever comes of it.

That's largely because eliminating the tax-exempt status of municipal bonds would raise relatively little in revenue for the federal government-the most commonly cited estimate is about $50 billion per year-while doing quite a bit of harm to state and local governments in the form of higher borrowing costs.

Investors are willing to lend to municipalities on extremely attractive terms because of the tax advantages. Without those advantages, it only makes sense that they would demand higher returns on their investment.

Moreover, the average bond-holder is by no means a fat cat. The Internal Revenue Service estimates that households making less than $200,000 per year hold more than half of municipal bonds. Consequently, going after munici-pal bonds would be a direct hit to the middle class, the very group of people both men say they want to protect.

The odds are good that the threat to municipal bonds is mere campaign posturing that's unlikely to be translated into action. Too many entrenched interests stand in the way of an attack on municipal bonds' tax exemption, which would wreak havoc on both investors and municipal borrowers.

Take advantage of the recent dip in price to lock in a more attractive yield-currently 2.8%, or close to 4% for those in the higher tax brackets-on Market Vectors Intermediate Municipal ETF.

Editor's Note: This article was written by Benjamin Shepherd of Personal Finance.

Below, find some more great investing and trading content from MoneyShow:

Corporate Bonds: A Safe Haven?

Corporate Bonds with Big, Solid Yields

3 Closed-End Funds with Solid Income

Twitter: @TopProsTopPicks
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos