-High-yield municipal bonds typically offer higher yields than investment-grade munis, but carry additional risk.
-A small allocation to high-yield munis can make sense for more aggressive muni investors—but today’s yields are low relative to alternatives.
-If you choose to venture into this part of the market, we suggest you do so via an exchange-traded fund (ETF), mutual fund or separately managed account, to help with diversification and ongoing credit monitoring.
-High-yield munis yield more than high-yield corporate bonds only for investors in the top tax brackets
-High-yield munis have historically offered returns similar to high-yield corporate bonds, but with less volatility
-High-yield munis don’t provide the same level of diversification benefits as investment-grade munis
My Comments based on the above:
As the article said, HY Munis performance is similar to HY corp with lower volatility and why I rarely own a dedicated HY corp fund.
I don’t agree with point 6. I would replace the word diversification with ballast. HY Muni have more risk but also more diversification and sometimes lower volatility than IG Munis because HY react better to rates changes. Most times HY Munis is a pretty good ballast category unless markets are really bad like 2008.
As a retiree with taxable accounts, I invest a big % in HY Munis and since early 2018 I even use it in my IRA because its performance is very good with lower volatility.
An important point is that only high-income earners are really benefitting from the tax break and why I don't like it when a typical investor is looking for lower distribution funds and lose on performance. If a bonds fund performance is 6% annually with 4% distribution while another bond performance is 4% annually with only 2% distribution, the first fund is still better after-tax.
In the last several weeks HY Munis is the biggest category I own and more than 50% of my portfolio, this is by no mean a recommendation but based on my own goals.