AVMU delivers tax-free income through a diversified portfolio of municipal bonds, targeting higher-quality issuers while maintaining enough yield to compete with taxable alternatives. The fund aims to balance income generation with capital preservation for investors in higher tax brackets.
How It Works
The fund employs an active approach to municipal bond selection, focusing on investment-grade securities across states and sectors while avoiding the concentration risks of single-state funds. Portfolio managers adjust duration positioning based on rate expectations and actively manage credit exposure to capture relative value opportunities. The strategy emphasizes intermediate-duration bonds (typically 4-7 years) to balance yield and interest rate sensitivity.
Key Features
- Active management at passive-like fees allows for opportunistic trading around new issuance and credit events
- National diversification reduces exposure to any single state's fiscal problems or tax law changes
- Tax-equivalent yields often exceed 4-5% for investors in top federal brackets, beating many corporate bonds
Risks
- Rising rates could drive 5-10% principal losses given intermediate duration; muni investors often underestimate rate sensitivity
- Credit spreads can widen dramatically during muni market stress, causing 3-5% drawdowns even in high-grade bonds
- AMT exposure and potential federal tax law changes could reduce or eliminate the tax benefits that justify lower nominal yields
Who Should Own This
Best suited for high-earners in the 32%+ federal tax brackets who need fixed income exposure but want to minimize tax drag. Works particularly well as a core bond holding for taxable accounts, replacing traditional aggregate bond funds. Investors should have at least a 3-year time horizon to ride out potential rate volatility and enough wealth that municipal bond minimums aren't a constraint.