Case Summary

With the city of Harrisburg, PA on the verge of bankruptcy and other cities and states in financial trouble, investors should be revisiting the role of tax-exempt bonds in their portfolios.   ETFs offer investing possibilities to investors seeking tax-exempt income without the risk of exposure to a single municipality or state.


Exchange traded funds are a great way to gain diversified exposure to tax-exempt bonds.  Several funds provide diversification across geographies and some even offer weekly income.

Portfolio Recommendations

The $1.8 billion S&P National AMT-Free Municipal Bond Fund (MUB) has nearly 700 holdings.  The largest position represents only 1.18% of the portfolio.  The 30-Day SEC yiled is 3.21% and the expense ratio is 0.25%.

The $900 million SPDR Barclays Capital Municipal Bond ETF (TFI) has 291 holdings, a 30 Day SEC Yield of 3.23% and a net expense ratio of 0.20%.

For tax-free weekly income, investors should consider the $840 million VRDO Tax-Free Weekly Portfolio (PVI). The fund tracks an index of tax-exempt Variable Rate Demand Obligations (VRDOs) issued by municipalities in the United States. VRDOs are high-quality, floating-rate bonds that provide investors with tax-exempt income.

See the ETF Directory for additional investing choices or a complete list of tax-exempt ETFs.