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VanEck attracts overseas investors to municipal bond ETF of ETFs


ETF provider VanEck has added to its suite of Guided Allocation funds with the launch of the VanEck Vectors Municipal Allocation ETF (MAAX), an ETF of ETFs designed around a proprietary model that uses momentum, along with both duration and credit risk indicators, to tactically allocate among selected VanEck Vectors Municipal Bond ETFs.

VanEck’s Municipal Bond ETF suite includes five, now six, municipal bond ETFs and has assets of USD5 billion.

These ETFs are largely targeted at a US audience, whose return is further enhanced by the tax advantages within the country, but Jim Colby, Municipal Strategist with the firm, says: “The natural buyers tend to be US tax payers but we have a growing phenomenon of foreign interest due to supressed government yields in Europe, particularly Germany, and Asia, including Taiwan and Japan.”

Michael Cohick, Director of ETF Product Marketing at VanEck, explains that this latest launch is the third iteration in the suite of Guided Allocation funds. “These funds are tactical strategies designed to dial-in risk when appropriate and dial-out when risks flare up.”

David Schassler (pictured), portfolio manager at VanEck explains: “As a fixed income investor, you typically get compensated through exposure to high yield (“credit”)and being in longer duration, so this strategy is typically overweight credit and duration risk relative to its benchmark most of the time. If indicatiors show risks have increased, we move to short duration and to higher credit quality.”

MAAX has a low management fee of 0.08 percent and a a TER of 0.36 percent when accounting for acquired fund fees and expenses (AFFEs).

Cohick says: “We believe this product has a specific appeal for registered investment advisers (RIAs) and financial advisers who have a growing book of business and are focused on relationship management with their clients, with little time left to focus on the onerous work of picking individual muni ETFs. We also believe this strategy could garner the attention of individual investors who are attacted to the embedded risk management.”

Schassler says investors are drawn to the embedded risk management the strategy offers. “When we measure risk as high, we will take action through our diversified allocation of municipal ETFs.”

“The basics that underlie VanEck’s strategy are that it has been the case for decades that investors seek out municipal bonds, firstly, because of their general stability and low volatility, Colby says.

“Secondly, in the US, they love the tax-free income. And thrid is that credit quality of municipal bonds remains high and defaults extremely low relative to other asset classes.
“Short or long duration, high or low credit quality, overall the underlying value of the products in the five underlying ETFs offer investors some security that they don’t generally see from other asset classes.”

Cohick believes that the timing is right to invest in municipals. “Now is a great time, in our opinion, where we see reinvestment demand in form of bonds maturing and calls coming to the market completely outstripping new issuance supply, leading to the potential for higher bond prices. So for investors who are interested in price appreciation, now is a good time.”
Cohick concludes: “We think this is a great way to access municipal bonds through a rules based strategy using objective indicators to guide asset allocation, helping to take the the emotional guesswork out of where to be in the market.”

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