Active municipal bond ETFs: Why JMUB is positioned well in today’s markets - J.P. Morgan Asset Management

Active municipal bond ETFs: Why JMUB is positioned well in today’s markets

Navigate today’s municipal bonds with active ETFs

With their high quality, low default rates and low equity correlations, intermediate municipal bonds make an attractive core holding in any environment – but even more so during the COVID-19 crisis. As economic uncertainties drive up volatility and yields, now may be an opportune time to capture the income, return and diversification potential with the actively managed JPMorgan Municipal ETF (JMUB).

The coronavirus’s impact has been felt across asset classes, and municipals have not been immune. The market’s initial reaction was a sharp sell-off that pushed valuations down to levels not seen since 2008-09. Today, yields remain above their pre-pandemic lows, and we expect more spread widening going forward on the occasional bout of illiquidity and credit downgrades.

These market dislocations should continue to create compelling long-term opportunities across the curve, especially for managers able to distinguish financially strong credits from those more susceptible to COVID-19 aftershocks. In a space historically dominated by passive ETFs but currently demanding active solutions, JMUB fills a void. Instead of tracking a benchmark, it uses bottom-up, fundamental research to actively pursue higher tax-free income and total return while preserving capital.

Four reasons to consider JMUB now

  1. Deeper proprietary research to assess opportunities and risks. In addition to considering external credit ratings and developing our own internal ratings, we are now assigning a COVID-19 resiliency score to each issue on our municipal platform. This extra step enables the ETF team to stress test credits in advance and identify securities best equipped to weather the current storm.
  2. Broader flexibility than passive indexing. Our active, value-driven approach allows managers to express their best ideas while addressing the inherent biases and bets often found in passive benchmarks. For example, California and New York make up nearly 31% of the index, but far less of JMUB as we reduce exposure to states with high sensitivity to economic activity.

    Similarly, we can tactically manage duration, credit quality, sector allocations and security selection to pursue higher returns or lower risks than the benchmark in any given climate. Today, that means more emphasis on high-quality general obligation bonds and essential public utilities – and more scrutiny and selectivity in municipalities relying heavily on energy, tourism or sales taxes.
  3. Higher income potential than taxable core bonds or peers. JMUB is currently outyielding the Bloomberg Barclays U.S. Aggregate Index before taxes, with a higher tax-exempt yield than most Morningstar peers. Even for investors not seeking current income, that extra yield can serve as a boost to total portfolio returns or mitigate volatility in today’s turbulent times. Looking ahead, we’ll continue to view spread widening as an opportunity to add yield when our research suggests clients will be compensated for the risk.
  4. Greater market access when liquidity is needed. If COVID-19 or other events disrupt primary or secondary markets, JMUB can leverage J.P. Morgan’s extensive trading power, technology platform and dealer network to maintain liquidity. For shareholders, our size provides access to municipals at more favorable institutional pricing as well as a “first look” at new issues coming to market.

Learn more about JMUB

JMUB combines the research and manager insights of an active strategy with the liquidity, cost efficiency and transparency of an ETF. The result is a tax-exempt income solution conservatively positioned for the current environment and attractively priced below many of the passive options in its intermediate municipal category.

JMUB RISK SUMMARY - The risk of a municipal obligation generally depends on the financial and credit status of the issuer. Changes in a municipality’s financial health may make it difficult for the municipality to make interest and principal payments when due. Under some circumstances, municipal obligations might not pay interest unless the state legislature or municipality authorizes money for that purpose. Municipal obligations may be more susceptible to downgrades or defaults during recessions or similar periods of economic stress.

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Related funds

JPMorgan Municipal ETF (JMUB)
Designed to deliver federal tax-exempt income and capital preservation by investing in municipal securities.
JPMorgan Ultra-Short Municipal Income ETF (JMST)
Designed to perform well over market cycles through a diversified portfolio of investment grade fixed, variable and floating-rate municipal securities exempt from federal income taxes.