TheStreet.com Ratings initiated coverage of 15 exchange-traded funds that accrued a sufficient track record of risk and performance data by the end of December 2008. Only one of the newly rated ETFs with inception dates during December 2007 received our top rating level of excellent. Starting off with a rating of A+, the Market Vectors Lehman Brothers AMT-Free Intermediate Municipal ETF ( ITM) is the sole buy-rated fund of the bunch. The fund mirrors the Lehman Brothers AMT-Free Intermediate Continuous Municipal Index with an average of 10.8 years until maturity. Not only does this municipal bond fund duck federal and some state and local taxes, but it is also designed to be free from alternative minimum tax requirements. As of Nov. 30, 2008, the fund's 30-day yield of 4.25% would be equivalent to 6.54% for wealthy investors in the 35% tax bracket. The 75 issues held were predominantly local, state, transportation, special tax, water, lease, power, education and hospital municipal bonds, with New York, California and Texas topping the list of debtor states. At C+, just missing the cut for a buy rating, the Vanguard Extended Duration Treasury ETF ( EDV) spiked upward to a total one-year return of 54.51% in 2008. The fund is the exchange-traded version of the similarly named open-end fund topping our list of best-performing Vanguard funds in December.
Jim Colby, Senior Municipal Bond Strategist at Van Eck Global says municipal bonds ETF will not be catered to in the coming year because tax rates are still rising and the Fed's actions are priced into the market.