The current trading environment is ugly, but if you are looking for preservation of capital, as well as a healthy dividend, Market Vectors High-Yield Muni ETF (HYD) may be the answer. High yield corporate bonds have been a mess due to plunging oil prices and general overvaluations, leaving investors searching for yield anywhere and everywhere.HYD data by YCharts
The fundamental story behind higher-yielding municipal bonds, however, has been much more optimistic. U.S. economic data improved over the last year, and has been strengthening the average U.S. consumer. While financial markets are being roiled by global issues, lower energy prices and cheap credit have aided spending, and thus tax revenues of municipalities.
As investors seek out higher-yielding, low-beta assets, the municipal bond space looks to be the safe-haven. As a comparison, here is how alternative investing options have performed over the last year or more: SPDR Barclays High Yield Bond is down 23% since mid-2014, SPDR S&P 500 has fallen 15% from its 2015 peak, iShares Dow Jones Select Dividend Index is down 13% from its 2015 peak, and iShares Barclays 20+ Year Treasury Bond has traded sideways over the last year, while paying out a paltry 2% dividend.
Compare these assets to the higher-yielding municipal bind ETF, shown below, which is up close to 6% since last July, while also paying out a 4.5% dividend. This asset has produced the most impressive returns throughout the recent market rout, and if the bear market for equities is expected to continue into 2016, the high yield municipal bond ETF could show further gains.
Chart provided by Stockcharts.com