BondView 500 Index Outperforms Top 5 Largest Municipal Bond Funds
Key Takeaways:
- During market turmoil sparked by COVID-19, the Bondview 500 Municipal Bond Index provided superior cushioning and outperformed the Top Five Largest Municipal Bond Funds.
- The BondView 500 Liquid Municipal Bond Index performed nearly three times better (-4.1% Vs -11.5%) and was significantly less volatile than the Top Five Largest Municipal Bond Funds.
When global markets drop, municipal bond fixed income portfolio allocations are supposed to provide shock absorption. Some active muni bond funds take on more risk during better economic times—but that extra risk can be detrimental during times of market turmoil.
We saw a real example of the effects of this extra risk during the March 2020 COVID-19 triggered-market meltdown. The top five largest municipal bond funds lost an average -11.5% total return on their NAV’s. This translated to $16.2 billion in lost market value across these 5 funds alone.
However, during this same period, the BondView 500 Liquid Municipal Bond Index performed nearly three times better (-4.1% Vs -11.5%) and accordingly, was significantly less volatile than the Top Five Muni bond funds during the same period.
How the BondView 500 Index Outperformed the Market
The BondView 500 Municipal Bond Index is purposefully designed to be less volatile in illiquid markets because it holds the most actively traded and widely held municipal bonds. This also means that investors can enter and exit a position easily without having to accept as significant a discount to current market value. The Bondview 500 Index provides returns uncorrelated with the equity market, therefore providing wealth preservation when investors need it most.
Total Return During March 2020
- BondView 500 Municipal Bond Index: -4.1%
- Top Largest Muni Bond Funds: -11.5%
Market Value Loss (Total):
- BondView 500 Municipal Bond Index: Minimal
- Top Largest Muni Bond Funds: $16.2 billion
In March 2020, the municipal bond market experienced unprecedented volatility. A surge of investor withdrawals triggered forced selling, causing yields on 10-year bonds to double within three days—a historic price drop. The S&P Municipal Bond Index lost more than a year’s worth of gains, and state and local governments faced severe challenges accessing debt markets.
Amid this turmoil, the BondView 500 Index stood out as a model of stability. Its focus on liquid and actively traded bonds shielded investors from the extreme price swings experienced by less-liquid funds. Key benefits include:
- Superior Shock Absorption: The index provided a cushion against market downturns, minimizing losses and preserving capital.
- Improved Wealth Preservation: Reduced volatility helped protect investor portfolios when they needed stability the most.
- Liquidity Advantage: Investors could trade without incurring significant discounts to market value, even during crises.
| Fund Symbol | Fund Name | Assets | Start Date 3/1/20 | End Date 3/31/20 | NAV Drawdown | Loss |
| BV500 | BondView 500 Index | – – – | 100.49 | 96.19 | -4.28% | – – – |
| VWITX | Vanguard Interm-Term Tx-Ex Inv | $70.5 Bil | 14.88 | 13.31 | -10.55% | -$7.4 Bil |
| AFTEX | American Funds Tax-Exempt Bond A | $23.6 Bil | 13.73 | 12.24 | -10.85% | -$2.5 Bil |
| MUB | iShares National AMT-Free Muni Bond | $16.5 Bil | 118.15 | 100.03 | -15.34% | -$2.5 Bil |
| VWAHX | Vanguard High-Yield Tax-Exempt | $15.1 Bil | 12.11 | 10.20 | -15.77% | -$2.2 Bil |
| MANLX | BlackRock National Municipal Instl | $13.1 Bil | 11.39 | 10.01 | -12.12% | -$1.5 Bil |
| Total Loss | -$16.3 bil |
FAQs About the BondView 500 Municipal Bond Index
1. What is the BondView 500 Municipal Bond Index?
The BondView 500 is a municipal bond index comprising the most actively traded and widely held municipal bonds. It is designed to provide liquidity, lower volatility, and reliable returns.
2. How does the BondView 500 Index compare to other municipal bond funds?
During periods of market turmoil, such as March 2020, the BondView 500 outperformed the top five largest municipal bond funds, delivering nearly three times better performance (-4.1% vs. -11.5%).
3. Why is liquidity important in a municipal bond index?
Liquidity allows investors to buy and sell bonds without incurring significant discounts to their market value, especially during periods of high market volatility.
4. What makes the BondView 500 Index less volatile?
The BondView 500 focuses on actively traded and widely held bonds, reducing exposure to illiquid securities that are more prone to extreme price swings.
Notes: All investing is subject to risk, including possible loss of principal., Diversification does not ensure a profit or protect against a loss., Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.