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VanEck HIP Sustainable Muni ETF

Invest in sustainable muni bonds that support high-impact projects with tax-exempt status.

Municipal bonds are an excellent way for investors to generate tax-exempt income from their fixed-income portfolios. In particular, high earners may find them helpful as a low-risk strategy to reduce their state and federal tax liabilities. But, few people realize that they can also be a great vehicle to make the world a better place.

The VanEck HIP Sustainable Muni ETF (SMI) is an actively-managed ETF that makes it easy to invest in projects that support or advance sustainable development, as well as promote positive social and environmental outcomes. At the same time, the fund seeks to maintain benchmark characteristics, making it a drop-in replacement.

What are you buying?


Municipal bonds typically come in the form of a general obligation or revenue bond. General obligation bonds are tax-supported bonds that finance state or local governments, while revenue bonds are revenue-supported bonds that finance specific projects, like toll roads. Generally, general obligation bonds are the safest but lowest yielding of the two.

The VanEck HIP Sustainable Muni ETF (SMI) holds about 50 sustainable muni bonds in California (30%), New York (30%), and 12 other states. These muni bonds include general obligation bonds (~33%), tax bonds (~20%), and various revenue bonds that finance transportation, hospitals, schools, airports, and other public projects.

For example, the fund holds bonds financing the Val Verde Unified School District, which serves a low-income student population with a four-year graduation rate of 95% in 2018-2019. The bonds will directly finance campus security systems, repair aging infrastructure, and upgrade classrooms to support college or career readiness.

How does it fit in a portfolio?


The VanEck HIP Sustainable Muni ETF (SMI) seeks to maximize sustainability exposure while maintaining benchmark characteristics. The fund has an effective duration of about 6.3 years and a 0.24% expense ratio, making it an excellent drop-in replacement for a core portfolio of investment-grade tax-exempts with intermediate duration.

The fund also offers a competitive yield with monthly distributions, making it an excellent option for retirees that need current income. When looking at the yield, investors should look at the taxable equivalent yields based on their tax bracket. For instance, the 30-day yield may be 2.53%, but the equivalent might be 4.02% at a 37% bracket.

The bottom line


Municipal bonds play a critical role in many investor portfolios, especially for high earners that can realize the tax benefits. However, rather than supporting broad municipalities, the actively-managed VanEck HIP Sustainable Muni ETF (SMI) makes it easy to invest in sustainable development and positive social and environmental outcomes.

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Dec 08, 2022

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Asset Class

Bond

Impact Focus

Community Development

Tags

muni bonds sustainability

Highlights

  • Invest in an active portfolio of municipal bonds that fund projects supporting sustainable development, including affordable housing, green spaces, and hospitals.
  • Inclusion criteria include climate threat resilience, proximity to opportunity zones, ESG ratings, and UN SDGs.