Seeking Alpha’s Shaun Wurzbach recently interviewed Cardan Capital Partners co-founder Matt Papazian about efforts to strengthen core investments using municipal bond indices and the ETFs that track them.
You can read the full interview here. An excerpt:
S&P DJI: Has the availability of indices or beta for municipal bonds changed the way that you are able to use municipal bonds?
Matt: Yes. The ability to move weightings seamlessly between credit and duration is a great benefit of these new offerings. We are now able to access the high-yield municipal bond space with ease, something we would not normally do with individual bonds. Because of the historically low default rate in the municipal bond space, including high-yield bonds, we view access to different segments of the municipal bond market as an integral part of how we invest.
S&P DJI: We’ve observed robo-advisors using core municipal bond ETFs within even the most basic asset allocations and at every level of client investment. Are you finding it easier to deliver this asset class to the smaller clients you work with?
Matt: For smaller market participants, ETFs provide a substantially more efficient way to invest in tax-free bonds. Small trades in bonds are generally quite expensive for small market participants, even if they don’t see the fee, so ETFs have leveled the playing field for them.
S&P DJI: What are your thoughts on combining index-based municipal bonds with individual municipal bonds?
Matt: Although the majority of our municipal bond investing is done with ETFs, we view individual bonds as a valid way to get exposure to the space for larger investors, but we prefer ETFs for their liquidity and low transaction cost. We also avail ourselves of closed-end funds when the values are compelling.