Betting On Municipal Bonds With This Muni ETF

bondsDoug Fabian, editor of Making Money Alert, says municipal bonds are a good place to be now, but you have to be selective, and he recommends an ETF. With the Federal Reserve focused on keeping its zero-interest-rate policy intact as we enter 2010, conservative bond funds are gaining appeal. Such exchange traded funds (ETFs) offer a way to add balance to equity-leaning portfolios, and to produce income.

“If inflation becomes a factor later in the year as the economy improves, bond funds may pull back. But for now, they offer a way to diversify your portfolio and to limit your risk, while giving you the opportunity for modest capital appreciation and dividends,” Doug Fabian Reports From The Money Show.

“One fund that I like is the SPDR Barclays Capital Municipal Bond Fund ETF (NYSEArca: TFI). The fund offers the advantages that I just mentioned, while investing in bonds that are intended to correspond, before fees and expenses, to the price and yield performance of the Barclays Capital Municipal Managed Money Index (LMMITR). The ETF’s strategy provides low portfolio turnover, accurate tracking, and relatively low costs,” Fabian Reports.

Fabian Continues Saying, “Keep in mind what you are buying with a municipal bond fund. If you want excitement in your life, a municipal bond fund is unlikely to provide it. They do, however, offer income in the form of dividend payments that certainly should beat anything your local bank is paying. With munis, there is a risk to your capital if interest rates rise and bond prices fall. As a result, you may want to sell any position that you take if it becomes clear that inflation is coming back. Until then, you can beat the low interest rates that banks are paying on their deposits through this investment, while enjoying the potential of capital appreciation.”

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Here are some details on the Bond ETF:

The investment (TFI) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the United States municipal bond market and provides income that is exempt from Federal income taxes. The fund uses a passive management strategy designed to track the price and yield performance of Barclays Capital Municipal Managed Money index. The index tracks the U.S. long term tax-exempt bond market, including state and local general obligation bonds, revenue bonds, pre-refunded bonds, and insured bonds. It is nondiversified.

Company Symbol % Assets
Albuquerque N Mex Mun Sch Dist 4% N/A 0.9
Arizona St Transn Brd Hwy Rev Rev Bds 5% N/A 1.01
Bay Area Toll Auth 5% N/A 0.99
Dallas Tex Area Rapid Tran Sal Sales 5% N/A 1.02
Florida St Brd Ed Pub Ed Cap Outla 5% N/A 1.09
Indiana Fin Auth 4.5% N/A 1.15
Massachusetts St Go Bds 5.5% N/A 1.74
Metropolitan Atlanta Rapid Tra Sales 5% N/A 0.93
Port Auth 4.75% N/A 0.93
Triborough Brdg & Tunl Auth 5% N/A 1.77

Chart for SPDR Barclays Capital Municipal Bond (TFI)


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