VanEck CEF Municipal Income ETF's Average People Pillar and Process Pillar ratings aren't enough to prevent other weaknesses from sending this strategy to a Morningstar Medalist Rating of Negative. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the most expensive quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy gets an Average Process Pillar rating.  The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

VanEck CEF Municipal Income ETF earns an Average Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. The predominant contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The firm's five-year retention rate of 83% also underpins the rating. Lastly, the process is limited by its parent firm's subpar risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.6 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to replicate as closely as possible, before fees and expenses, and the price and yield performance of the S-Network Municipal Bond Closed-End Fund IndexSM (the "CEFMX Index").  The fund normally invests at least 80% of its total assets in investments the income from which is exempt from U.S. federal income tax (other than federal alternative minimum tax). It normally invests at least 80% of its total assets in securities of issuers that comprise the fund's benchmark index. The CEFMX Index is comprised of shares of U.S.-listed closed-end funds.  

 This strategy has a modest 3.8% 12-month yield, lower than its average peers' 4.0%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 4.0%. While a lower yield may deliver less income, it also tends to indicate lower credit risk. The portfolio holds assets with a higher average surveyed credit quality of BBB, compared with the typical peers' BB. Lower-credit-risk strategies are often able to navigate bear markets more effectively. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 12.0-year duration, is expected to gain 12.0% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

Average

Process

VanEck’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. The fund takes a solo manager approach, with Peter Liao as the only listed manager at the helm, who brings 18 years of portfolio management experience to the table. They manage over 25 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

VanEck’s ownership structure and specialization make it unique among industry peers. The firm’s founding family and namesake still have control, and its product lineup still reflects its legacy as a specialist in niche market segments. VanEck earns an Average Parent Pillar rating. 

Founded by John van Eck in 1955, the firm staked its claim in the industry by capitalizing on burgeoning markets. Starting with the opening of Western Europe to U.S.-based investors in the wake of the Marshall Plan, VanEck’s largest and most successful products provide exposure to areas of the market that are off the beaten path, such as hard assets, emerging-markets debt, and below-investment-grade-rated corporate debt.

Through its history, VanEck has taken an opportunistic approach to product development. For instance, since 2018, VanEck has launched strategies that provide exposures ranging from international REITs to companies involved in video game development. Regardless of where their reach takes them, however, VanEck builds a case that the strategy will be relevant over the long term and that its risks must be easy to understand. However, not all its products catch on, and the firm has shuttered several offerings in the last decade. 

VanEck remains a privately held firm, wholly owned by CEO Jan van Eck and his family. Although this enables the firm to focus on the long term and the firm offers some employees participation in profits, the firm hasn’t used equity as a recruiting and retention tool and introduces some key-person risk in the executive suite.

Parent

VanEck CEF Municipal Income ETF 

XMPT is a fund-of-funds that tracks an index that provides exposure to US-listed muni-bond closed-end funds.

VanEck CEF Municipal Income ETF offers diversification in the municipal bond space through closed-end funds.

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ETFs Of CEFs: Diversification And Higher Distributions

The XMPT ETF is a fund-of-funds of closed-end funds focusing on municipal bond investments. Municipal bonds have very high duration due to the long-term nature of their assets, hence municipal bond funds tend to be very sensitive to interest rates. Given my view that long-term interest rates may continue to rise or stay higher for longer, I advise avoiding the XMPT ETF.

XMPT: Essentially A Bet On Long-Term Interest Rates

The VanEck CEF Municipal Income ETF invests based on the S-Network Municipal Bond Closed-End Fund Index. Both the ETF and its index are reviewed in detail.  I also compare XMPT against both a set of municipal bond ETFs and CEFs. The added risk of investing in CEFs is shown when comparing XMPT against three other municipal bond "true" ETFs.

XMPT: A Municipal Bond ETF That Invests In CEFs

By Michael Cohick Director of Product Management A Q&A guide for the VanEck CEF Muni Income ETF (XMPT), a diversified, rules-based, and cost-effective ETF tracking the S-Network Municipal Bond Closed-End Fund Index.

XMPT: Question and Answer

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Earning Income Through ETFs Of CEFs

Closed-end funds are known for their high distribution rate and potential to provide current income. But many investors are unfamiliar with their structure or uncomfortable with their premium/discount volatility.

Earning Income Through ETFs of CEFs

Investors should consider the opportunities in the municipal bond market and turn to related exchange traded fund strategies to diversify back into this fixed income category.

Why Income Investors Should Revisit Municipal Bond ETFs

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Munis Positioned to Shine in 2023

XMPT invests in closed-end funds that invest in municipal bonds. Munis have been getting hit hard as interest rates rise, but CEF discounts are also widening.

XMPT: Diversified Municipal Bond Fund Exposure

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XMPT: An Interesting ETF With A Portfolio Of Muni CEFs

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On the back of surprisingly strong tax collection, state and local finances are solidifying and that's constructive for municipal bonds. The VanEck Vectors CEF Municipal Income ETF (XMPT) is higher by nearly 2% over the past month, an impressive feat in that time frame for a municipal bond exchange traded fund.

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With its tax advantages and relative stability, municipal bonds should continue to outperform in the tricky fixed income environment, all to the benefit of the VanEck Vectors CEF Municipal Income ETF (XMPT). With its 0.40% expense ratio, XMPT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of [.

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For seven straight months, fixed income investors turned to municipal bonds over Treasuries, putting the spotlight on three VanEck ETFs investors can consider. “America's municipal bonds are staging their longest winning streak against Treasuries in seven years,” said a Bloomberg article.

Municipal Bonds Are Soaring. So Are 3 VanEck ETFs

Municipal bonds have given fixed income alternative mechanisms to generate income with ETFs that offer a monthly distribution. Funds like the VanEck Vectors CEF Municipal Income ETF (XMPT) are great exemplars.

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