Just 31% of HYMB’s assets and 25% of HYD’s assets were investment grade-rated debt, with both funds holding a lot more speculative-grade-rated as well as non-rated bonds, according to Rosenbluth.
“Investors might consider using these two types of index-based ETFs in tandem to build a portfolio, with a combination of MUB/VTEB and HYD/HYMB to generate additional income and manage risk, based on tolerance level. HYD and HYMB offer 3.3% and 3.0% yields, respectively,” Rosenbluth said.
Meanwhile, PIMCO’s latest ETF takes an active approach to a core-plus muni bond strategy. PIMCO Municipal Income Opportunities Active ETF (MINO 50 NR) began trading in September, run by the same management team behind the $680 million PIMCO Intermediate Municipal Bond Strategy ETF (MUNI 56), according to CFRA.
“But unlike MUNI, MINO has the flexibility to actively seek opportunities across the investment-grade and high-yield municipal markets. Indeed, PIMCO believes that investment-grade municipals have recently been trading close to fair value when compared to after-tax corporate spreads, while there continues to be pockets of opportunity in the high-yield segment,” Rosenbluth said.
PIMCO asset manager David Hammer has noted that municipalities have relatively low default rates compared to corporate issuers. While MINO is still small, with just $42 million in assets, the fund recently held nearly 4% of assets in bonds rated BB or below and an additional 26% stake in non-rated bonds, Rosenbluth said.
Rosenbluth and Hammer, head of PIMCO’s municipal bond portfolio management and manager of both MINO and MUNI, will discuss how actively managed muni bond ETFs can deliver more attractive tax-advantaged income and return potential than traditional passive muni ETFs in exchange for a tactical increase in risk, at a CFRA webinar on Oct. 13.