What Midterm Elections Do – & Don't – Mean for Bonds
Midterm elections are increasingly taking over the headlines, and that includes coverage of markets. While inflation, rates, and geopolitics probably have more outright impact on portfolios, investors and market watchers still look to midterm elections as a major event.
FLMI: Not Too Much Signs Of Stress, But Inflation Coming Back
Franklin Dynamic Municipal Bond ETF (FLMI) faces headwinds from rising yields and inflation expectations, especially due to the Iran War's impact on energy prices. FLMI's 7-year duration heightens sensitivity to upward yield curve shifts, making it less attractive versus cash or ultra-short duration fixed income. The ETF's 0.3% expense ratio is good compared to active alternatives, but significantly more than passive, though there is historical outperformance on FLMI.
FLMI: High-Quality Muni Bond ETF, Solid Tax-Advantaged Yield, Outperformance Since Inception
The Franklin Dynamic Municipal Bond ETF is an active muni bond ETF. It focuses on investment-grade munis, with a tax-advantaged 3.9% dividend yield. Before-tax income is competitive, after-tax income should be above-average for most investors in taxable accounts.
FLMI: Perfectly Sensible, Just Produces A Meagre Income
Franklin Dynamic Municipal Bond ETF offers diversified muni bond exposure but delivers an unimpressive 3.51% trailing yield. FLMI's strategy favors middle-to-short tenor and moderate credit risk, resulting in lower interest rate risk but only middling income. I believe more selective muni funds or those taking additional credit risk—without materially higher default risk—offer superior yields.
FLMI: Credit Spreads Historically Low
Credit spreads are at historically tight levels, which puts us off credit bets in fixed income. Munis may have relative value based on relative movements between their yields and Treasuries. It's unclear how much the possibility of short-term rate cuts will help this ETF, as its long maturity bonds are priced based on more structural factors.
Four High-Yield Muni ETFs, For Investors In Taxable Accounts
High-yield muni ETFs focus on investment-grade municipal bonds, leaning into those with weaker ratings. Dividend yields are good, in the 4.0% - 5.0%, tax-exempt, and provide higher after-tax income, making them attractive for taxable accounts and high-tax-rate investors. A quick look at four particularly good, high-yielding muni ETFs follows.
