Keep the Pedal to the Metal. Those of you who recall the CB (citizens band) radio craze of the 1970s may recognize the following expression the era spawned: ”Keep the pedal to the metal.” Its fundamental meaning — push ahead with determination — comes to mind as I consider what I believe is the optimal municipal bond strategy at this time.
Following recent and very thoughtful guest contributions to Muni Nation, I thought it’s time I provide my outlook for the remainder of the second quarter. Firstly, I think it is important to take note of the municipal market’s performance thus far in 2016 (through April 29). Returns were positive each of the last four months; the market is up 2.42% year-to-date1. The eight consecutive months of cash inflows into muni funds that helped fuel these gains highlight the key fundamentals supporting this market: a modest increase in new bond supply, the historically low default rate2 underlying the majority of issues, and the taxable equivalent yields compared to many taxable alternatives.
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Source: Barclays. For illustrative purposes only. Index performance is not indicative of fund performance. Past performance is no guarantee of future performance. Municipal index yields reflect taxable equivalent yields, based on the highest U.S. Federal income tax rate of 39.6%. If an investor were in a lower tax bracket, the yields would have been lower.
Additionally, I believe that yields should hold at or near current levels even in the unlikely event that the Federal Reserve pushes interest rates higher before the end of the year. I would continue to expect munis to deliver relatively favorable returns.
Invoking the title of this piece, I suggest again: keep the pedal to the metal. Municipals can continue to form an important part of an investor’s core strategy in the near future. Investors should not deviate from employing municipal bonds, both tactically and strategically, in their portfolios. Stay the course.
Post Specific Disclosures
1Source: Barclays. Based on the Barclays Municipal Bond Index. The index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year.
2Source: Moody’s Investors Services.
Yield to Worst measures the lowest of either yield-to-maturity or yield-to-call date on every possible call date.
Taxable equivalent yields are used by investors to compare yields on taxable and tax-exempt securities after accounting for federal income taxes. TEY represents the yield a taxable bond investment would have to earn in order to match, after deducting federal income taxes, the yield available on a tax-exempt municipal bond investment. TEY = Tax-Free Municipal Bond Yield/(1 -Tax Rate).
The graph displays the yields of the Barclays Municipal Bond Index and Barclays High-Yield Municipal Index on a tax-equivalent return basis and compares such yields to other asset classes as represented by the indexes described below. Fixed income investments have interest rate risk, which refers to the risk that bond prices generally fall as interest rates rise and vice versa. U.S. government bonds are guaranteed by the full faith and credit of the United States government. Municipal and corporate bonds are not guaranteed by the full faith and credit of the United States and carry the credit risk of the issuer. Municipal bonds are exempt from federal taxes and often state and local taxes. U.S. Treasuries are exempt from state and local taxes, but subject to federal taxes. Prices of bonds change in response to factors such as interest rates and issuer’s credit worthiness, among others.
The Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. The Barclays High-Yield Municipal Bond Index is considered representative of the broad market for below investment grade, tax-exempt bonds with a maturity of at least one year. The Barclays U.S. Corporate Bond Index is considered representative of the broad market for investment grade U.S. corporate bonds with a maturity of at least one year. The Barclays U.S. Treasury Index is considered representative of public obligations of the U.S. Treasury with a remaining maturity of at least one year.
by James Colby, Portfolio Manager James Colby has more than 30 years of fixed income experience. Portfolio Manager of Municipal Bond ETFs at VanEck, he is known for his perspective on the U.S. municipal bond marketplace.
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Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.
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iShares Global Aerospace & Defence UCITSETFinvesterar i aktier i företag från utvecklade marknader som tillhör flyg- och försvarssektorn. Åtagandet inkluderar tillverkare av civil eller militär flyg- och försvarsutrustning, relaterade reservdelar eller produkter, försvarselektronik och rymdutrustning.
Sedan tidigare är denna börshandlade fond noterad på Euronext Amsterdam.
Namn
ISIN Ticker
Avgift
Utdelnings- policy
iShares Global Aerospace & Defence UCITSETF USD (Acc)
Produktutbudet inom Deutsche Börses ETF- och ETP-segment omfattar för närvarande totalt 2 408 ETFer, 199 ETCer och 256 ETNer. Med detta urval och en genomsnittlig månatlig handelsvolym på cirka 23 miljarder euro är Xetra den ledande handelsplatsen för ETFer och ETPer i Europa.
HANetf Future of European Defence UCITSETF Accumulating (8RMY ETF) med ISIN IE000I7E6HL0 försöker att följa VettaFi Future of Defence Ex US-indexet. VettaFi Future of Defence Ex US-indexet följer resultatet för företag som är verksamma inom militär- eller försvarsindustrin. Amerikanska företag är exkluderade. Vikten av europeiska företag i indexet är minst 90 procent.
De börshandlade fondens TER (total expense ratio) uppgår till 0,39 % per år. HANetf Future of European Defence UCITSETF Accumulating är den enda ETFen som följer VettaFi Future of Defence Ex US-indexet. ETFen replikerar resultatet för det underliggande indexet genom fullständig replikering (genom att köpa alla indexkomponenter). Utdelningarna i ETFen ackumuleras och återinvesteras.
Denna ETF lanserades den 7 april 2025 och har sitt säte i Irland.
Future of European Defence UCITS ETF
En europeisk försvars-ETF, från ett europeiskt företag, utan exponering mot USA.
Europa åtar sig att göra stora försvarsinvesteringar: Efter årtionden av underutnyttjande återupprustar Europa äntligen. EU har lagt fram en försvarsplan på 800 miljarder euro, medan enskilda europeiska NATO-medlemmar snabbt ökar sina egna militära budgetar.
Strategisk autonomi innebär att köpa europeiskt: Europas upprustning handlar inte bara om att spendera mer – det handlar om att bygga försvarsoberoende. För att minska beroendet av amerikansk utrustning prioriterar EU europeiskt tillverkade vapen, fordon och system, vilket ger den europeiska försvarssektorn en stark medvind.
Europeisk försvars-ETF från ett europeiskt företag
Detta är den första europeiska försvars-ETF som lanserats av ett europeiskt företag – och stöds av teamet bakom den snabbt växande NATO-ETFen.
Europeisk försvars-ETFens mål
Future for European Defence UCITSETF (8RMY) syftar till att ge exponering mot NATO och NATO+-allierades försvars- och cyberförsvarsutgifter, exklusive USA.
Med ökande hot och amerikanskt stöd som inte längre garanteras, ser europeiska NATO-medlemmar över sina försvarsstrategier och ökar kraftigt militära utgifter. Efter ett decennium av att inte ha uppnått 2 % av BNP-målet har Europa tillsammans underutnyttjat med uppskattningsvis 850 miljarder euro. För att återuppbygga och modernisera sina väpnade styrkor riktar regeringarna nu denna förnyade investering mot europeiska försvarsföretag – vilket stärker kontinentens strategiska självförsörjning.
European Defence ETFföljer VettaFi Future of Defence Ex US Index, som är utformat för att fånga upp europeiska företag vars majoritet av sina intäkter kommer från militära utgifter.
Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel Nordnet, SAVR, DEGIRO och Avanza.
The investment environment in 2025 has been marked by increased uncertainty, including evolving trade dynamics involving the U.S. and rising geopolitical risks, which have weighed on overall market sentiment. Notably, though, gold has shone, surging past the symbolic $3,100 per ounce mark for the first time in history.
Gold has recently gained attention as investors seek potential hedges against rising inflation, currency fluctuations, and broader market volatility. Historical data suggests that both gold and gold mining equities have sometimes outperformed during periods of market stress, though such outcomes are not guaranteed and may vary depending on broader macroeconomic dynamics. The chart below displays historical episodes where gold and gold mining equities experienced relative strength during market corrections. However, such past performance should not be interpreted as a reliable indicator of future results.
Source: VanEck, World Gold Council.
The early months of 2025 have seen a resurgence in gold mining stock interest, with the VanEck Gold Miners ETF (GDX) receiving significant capital inflows. These flows reflect changing investor sentiment but should not be viewed as a guarantee of future returns.
Improved management
While gold mining stocks are a play on the gold price, they are much more than that. In the past, gold mining companies indulged in wanton value destruction. During gold’s last bull market that ended in 2011, mining companies borrowed heavily to fund new developments and extract gold from low quality mines. After the gold price dropped, they were forced to announce write-downs.
But since then, they have learned to keep costs under control. Indeed, for more than 10 years gold mining companies’ costs have grown by far less than a gold price that’s at least doubled. Despite the sharp rise in gold prices, especially in post 2020, miners have lagged significantly, likely reflecting ongoing capital and operating challenges noted between 2011 and 2015. This divergence may suggest a potential value opportunity if mining equities eventually re-rate closer to gold’s performance. Nevertheless, this is an assumption and may not turn out to be true, as structural issues or market dynamics could continue to weigh on miners’ valuations.
Gold Miner Premium/Discount to Gold
Source: Scotiabank. Data as February 2025.
Gold miners are expanding their profit margins, generating cash and embarking on share buy backs. What’s more, many have strong balance sheets. Yet still they trade at valuations below historical averages. Valuation metrics such as price-to-free cash flow (P/FCF) and price-to-earnings (P/E) ratios remain below the 12-month moving average.
Gold miners differentiate from gold because they are operating businesses influenced by company-specific factors such as management decisions, production efficiency, regulatory environments, and geopolitical risks. While gold is a passive asset driven by macroeconomic trends, miners add an additional layer of exposure to operational performance and cost structures.
A supportive macro backdrop
The performance of gold mining stocks is naturally influenced by the trajectory of gold prices. From a macroeconomic standpoint, factors such as inflation concerns and central bank policies continue to shape a cautiously optimistic outlook for gold, although the asset remains subject to volatility. Central banks continue to be net buyers, with 2023 marking a record year in terms of official sector demand. This trend has extended into 2024 and early 2025, underscoring institutional confidence in gold as a long-term store of value.
At the same time, the unfolding trade war is contributing to a more volatile global environment. These developments could support the case for gold and, by extension, gold mining equities. Moreover, recent efforts to improve transparency around global gold reserves, including audits of holdings in Fort Knox and London, have added credibility to the market, potentially reducing the perceived risk premium for miners.
Valuable portfolio diversification
From an investor’s perspective, gold mining stocks can be a useful diversifier in a broader equity portfolio, especially at a time of uncertainty for equity markets. Historically, gold mining stocks have exhibited a high sensitivity to changes in the price of gold, sometimes outperforming the metal itself during prolonged bull markets. However, they also tend to underperform during downturns, reflecting their leveraged exposure to gold price movements. Past performance is not indicative of future results. The table below shows the low correlation of the two VanEck gold miners UCITS ETFs with the MSCI World Index of global stock prices. This low correlation suggests that gold mining ETFs may perform differently than global equities, potentially helping to reduce overall portfolio volatility during periods of market stress. That said, they also carry equity-like risks, and investors should assess their portfolio objectives and risk tolerance accordingly.
When the VanEck Gold Miners UCITS ETF was introduced in 2015, it aimed to provide investors with a way to gain diversified exposure to gold mining equities. Early performance was tempered by concerns related to past capital discipline within the sector. Recent inflows into ETF may reflect renewed investor interest, although sentiment toward mining equities can remain sensitive to market and operational developments.
As gold glitters at a time of market volatility, there are good reasons to think gold miners may be a better way to play the rally. It should however be noted that while gold prices and mining companies are closely linked, investing in miners introduces additional layers of risk and complexity and investors should consider all the risk factors before investing.
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VanEck Gold Miners UCITSETF(the ”ETF”) is a sub-fund of VanEck UCITS ETFs plc, an open-ended variable capital umbrella investment company with limited liability between sub-funds. The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
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