THYM targets the riskier end of the municipal bond market where yields compensate for credit concerns. This actively managed ETF hunts for higher-yielding munis including non-investment grade and unrated bonds that passive muni ETFs typically avoid.
How It Works
T. Rowe Price's credit analysts dig into lower-rated municipalities, hospital systems, and development projects to find bonds trading at discounts to their credit risk. The fund can hold up to 35% in junk-rated munis and maintains flexibility to adjust duration based on rate expectations. Unlike index-based muni ETFs that stick to investment grade, THYM actively trades positions based on credit improvement or deterioration signals.
Key Features
- Active management from T. Rowe's $47B muni team with access to new issue market
- Can buy non-rated and high-yield munis that index funds exclude entirely
- Tax-free income with yields typically 100-150bps above investment grade muni ETFs
Risks
- Default risk is real — Puerto Rico alone cost high-yield muni funds 10-15% in 2017
- Liquidity can evaporate in stressed markets, widening bid-ask spreads by 2-3%
- Duration risk amplified by lower credit quality — a 1% rate rise could mean 6-8% losses
Who Should Own This
Best for high earners in 32%+ tax brackets who understand credit risk and want to juice their muni allocation beyond vanilla state funds. Works as a 10-20% satellite position alongside core investment-grade munis, not as your entire tax-free allocation. Requires stomach for volatility — this trades more like corporate high yield than traditional munis.