Two new Muni Bond ETFs from Van Eck Global extend the product set available to tax-exempt investors while reigniting the debate between using ETFs or active managers to invest in bonds.
In the article Muni ETFs Give Some Advisers Pause, Investment News writer David Hoffman says that, while financial advisers generally welcome new exchange traded funds that invest in municipal bonds, some industry experts question whether they are the best way to access such an opaque market.
ETFs provide an easy and low cost way to establish a diversified position in an asset class like municipal bonds. Proponents of active management, however, argue that since municipal bonds tend to be complex and opaque, expensive handholding is required to invest in them.
As an example, active management supporters point to the credit market freeze of last October when prices of muni bond ETFs were not closely tracking their underlying asset values. The irony is, as Hoffman’s article points out, that at least ETFs were trading during a period when many bonds were not.
The muni bonds highlighted include the Market Vectors High-Yield Municipal Index ETF (Ticker: HYD) and the Market Vectors Pre-Refunded Municipal Index ETF (Ticker: PRB).