SPDR Barclays Capital CA Muni Bond
, up 18.0%
PowerShares Insured California Muni Bond
, up 17.2%
iShares S&P CA AMT-Free Muni Bond
, up 15.0%
By comparison, the
S&P 500 SPDR Trust
is up 7.5%
Despite those strong returns, I believe it is more sensible for high-net-worth investors to diversify nationally for muni bond exposure. Banking on the general obligation debt of the lowest-rated state in the union alone isn't worthy of the additional tax-free yield.
For instance, an investor in the top federal bracket of 35% can garner an approximate tax-free equivalent yield of 6.8% in
PowerShares Insured National Muni
. He or she might be able to obtain 7.7% in approximate tax-free equivalent yield in PowerShares Insured California Muni. Stretching for the additional yield, however, invites greater price volatility.
What's more, as recently as two years ago, a leading credit-default-swap service ranked California as the 10th most likely government to default, with a 25% probability. Have things in California improved so much over the past two years that the state no longer faces the threat of defaulting on its obligations? Is a U.S. government bailout so entirely certain that one should stretch for the extra percentage point?
My advice? Stick with national muni ETFs such as PZA or
iShares S&P National AMT-Free Muni
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