Even after their strong performance since 2013, Russell believes tax-exempt municipal bonds have the potential to outpace other investment grade fixed income sectors on an after-tax return basis.
Investors have been known to stretch for yield in the current low rate environment, often taking risks that may be uncompensated. Tax-managed investors looking for attractive yield may want to consider municipal high yield, which can offer tax equivalent yields in excess of corporate high yield at a historically lower level of volatility.
Tax-exempt bond products are at the core of many tax-aware investors’ portfolios. But don’t be fooled – just because a product may be labeled “tax-exempt,” it may not necessarily offer tax-free returns. Generating capital gains can lead to tax distributions, even in municipal bond products. Here are a few items you may want to check on before choosing such a product.
In Russell’s view, recent volatility in the municipal bond market has created a potential opportunity for investors allocating to the fixed income market.