LearnBonds.com

Here’s How Much Detroit Bond Exposure Your ETF Has

Rate this post

detroitOn Thursday of last week, the city of Detroit filed for bankruptcy. This was the largest municipal bankruptcy in United States history.  Given the size of the bankruptcy and the attention it is getting in the press, municipal bond investors should be aware that headline risk is now a reality they must deal with.  By headline risk, I am referring to the risk that some investors will react to the Detroit bankruptcy filing by selling their municipal bonds.  The selling might be due to specific concerns about Detroit or because they think the Detroit filing may pave the way for other large filings in the future.  Whatever the reason may be, the performance of some parts of the municipal bond market on the day after Detroit’s bankruptcy filing, in addition to the barrage of articles on the subject, lead me to believe that headline risk, rather than actual risk from exposure to Detroit, is now alive and well.

To see a list of high yielding CDs go here.

Concerning municipal bond funds, why do I think headline risk, rather than actual risk from exposure to Detroit’s bonds, is the greater threat to munis?  It is because I decided to take on the mundane task of identifying and looking through the holdings of 21 municipal bond ETFs in search of how much Detroit exposure they have.  And I discovered that the amount of Detroit exposure, across the various funds, is largely negligible.  The results can be found in the table below:

Name

Ticker Symbol

Exposure to Detroit Bonds

PowerShares Insured National Municipal Bond Portfolio

PZA

2.45%

SPDR Nuveen S&P High Yield Municipal Bond ETF

HYMB

0.42%

Market Vectors Intermediate Municipal Index ETF

ITM

0.28%

Market Vectors Short Municipal Index ETF

SMB

0.23%

iShares National AMT-Free Muni Bond ETF

MUB

0.14%

SPDR Nuveen Barclays Municipal Bond ETF

TFI

0.10%

Market Vectors High-Yield Municipal ETF

HYD

0.05%

Columbia Intermediate Municipal Bond ETF

GMMB

0.00%

Market Vectors Long Municipal Index ETF

MLN

0.00%

iShares 2013 AMT-Free Muni Term ETF

MUAB

0.00%

iShares 2014 AMT-Free Muni Term ETF

MUAC

0.00%

iShares 2015 AMT-Free Muni Term ETF

MUAD

0.00%

iShares 2016 AMT-Free Muni Term ETF

MUAE

0.00%

iShares 2017 AMT-Free Muni Term ETF

MUAF

0.00%

PIMCO Intermediate Municipal Bond Exchange-Traded Fund

MUNI

0.00%

Market Vectors Pre-Refunded Municipal Index ETF

PRB

0.00%

PowerShares VRDO Tax-Free Weekly Portfolio

PVI

0.00%

SPDR Nuveen Barclays Capital Short Term Municipal Bond ETF

SHM

0.00%

PIMCO Short Term Municipal Bond Exchange-Traded Fund

SMMU

0.00%

iShares Short-Term National AMT-Free Muni Bond ETF

SUB

0.00%

SPDR Nuveen S&P VRDO Municipal Bond ETF

VRD

0.00%

While it is true that this list might omit some non-single-state-focused municipal bond ETFs, I have a hunch that it is fairly representative of the entire non-single-state-focused municipal bond fund universe.  As you can see, 14 of the 21 ETFs have zero exposure to Detroit bonds.  Of the remaining seven, just one has exposure greater than 0.50%.  I did not examine the various municipal bond mutual funds that exist, but again, I think the sample of ETFs I identified is fairly representative of the entire non-single-state-focused municipal bond fund universe.

In the coming days, it is certainly possible that headline risk from the Detroit bankruptcy continues to put pressure on municipal bond funds.  If that does indeed occur, I would suggest spending your time looking for and focusing on opportunities to pick up muni ETFs trading at significant discounts to net asset value.  In recent weeks, when benchmark Treasury rates were soaring, such opportunities presented themselves in the world of municipal bonds.  And I suspect they will occur again if the headline risk from Detroit’s bankruptcy gains any further traction.

More from The Financial Lexicon:

Income Investing Insider Newsletter

The 5 Fundamentals of Building a Retirement Portfolio

Options Strategies Every Investor Should Know

 

Learn how to generate more income from your portfolio.  
Get our free guide to income investing here.

 

 

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

Write first comment

Reply

Your email address is not published.