BondView 500 Index Outperforms Top 5 Largest Municipal Bond Funds
Key Takeaways:
1) During market turmoil sparked by COVID-19, the Bondview 500 Index provided superior cushioning and outperformed the Top Five Largest Municipal Bond Funds.
2) 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.
Summary:
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.
The BondView 500 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.
Why Is Reduced Market Volatility Important?
When global markets dropped back in March of 2020, the municipal bond market was left susceptible to extreme volatility when concerned investors fled bond funds, triggering waves of forced selling. Yields on 10-year bonds doubled in three days, a price drop never seen before, according to BondView, and the S&P Municipal Bond Index gave up more than a year’s worth of gains. State and local governments were locked out of the debt market for days and investors who cashed out likely suffered tens of millions of dollars in losses. Yields rise as bond prices fall.
During market turmoil the Bondview 500 Index provided superior cushioning and outperformed the Top Five Largest Municipal Bond Funds. The table below shows how the Bondview 500 Index outperformed the Top 5 largest municipal bond funds. A Yahoo Finance chart displays a chart of the steep drop of all 5 funds.
| 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 |
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.