MUB delivers tax-free income by holding a diversified portfolio of investment-grade municipal bonds from across the United States. The fund targets intermediate-duration munis, making it the go-to core holding for investors in higher tax brackets seeking to minimize their tax bill while maintaining portfolio stability.
How It Works
The fund tracks an index of investment-grade municipal bonds with remaining maturities of at least one year, weighted by market value. It maintains an intermediate duration around 5-6 years and holds hundreds of bonds across states and sectors — from general obligation bonds backed by taxes to revenue bonds from utilities and hospitals. The portfolio rebalances monthly to maintain its investment-grade focus while capturing the broad muni market.
Key Features
- Tax-equivalent yields often beat corporate bonds for investors in 32%+ tax brackets
- Holds 2,000+ bonds across all states, avoiding single-issuer concentration risk
- Lower volatility than corporate bonds due to retail-dominated muni market dynamics
Risks
- Rising rates could drive 5-8% principal losses given intermediate duration exposure
- State budget crises could trigger defaults, though historically rare in investment-grade munis
- AMT bonds in portfolio (typically 15-20%) lose tax benefits for some high earners
Who Should Own This
Best suited for high-income earners in the 32% tax bracket or above who need fixed income exposure in taxable accounts. Works as a core bond holding replacing aggregate bond funds for these investors — the tax savings typically outweigh the slightly lower nominal yield. Less attractive for tax-deferred accounts where corporate bonds offer better total returns.