The first half of 2024 saw increased mutual fund to ETF conversions. These funds bring the benefits of established track records to ETF investors. One such fund, the Eaton Vance Short Duration Municipal Income ETF (EVSM), combines short duration with tax benefits for income investors.
The Fed indicated the likelihood of just one rate cut in the second half. In an environment of elevated rates, investors looking to boost short-duration exposures would do well to consider municipal bonds. With the tax advantages muni bonds bring to portfolios, funds like EVSM remain attractively positioned in the current environment.
Municipal bonds are susceptible to interest rate rises. However, EVSM’s active management proves valuable in a changing rate narrative. The fund also benefits from its shorter duration exposure should rates rise. When rates eventually decline, municipal bonds at high rates have the potential to appreciate in value.
The strategy, converted from a mutual fund to an ETF in March, offers consistent outperformance over the benchmark ICE BofA 1-3 Year Municipal Securities Index. As a mutual fund, the strategy remained in the top third within its Morningstar category over five years.
Image source: Eaton Vance
EVSM offers diversified exposure to the municipal bonds market. By focusing on a duration of less than three years, it offers the potential of a reduced rate risk profile over longer duration peers. The fund invests at least 80% of its assets in municipal bonds. It also may invest up to 20% of its assets in regular taxable income securities as well as variable and floating rate instruments.
The fund managers consider issuer creditworthiness when investing across municipal bond sectors. EVSM’s primary credit quality rated AA (46.42% weight) and A (36.43%) as of 05/31/2024.
See also: “EVSM: Short Duration With Income Tax Benefits”
EVSN currently has a yield to maturity of 3.74% as of 06/24/2024 and a 0.19% expense ratio.
For more news, information, and analysis visit The ETF Yield Channel.