Listen to Brent Miller, Lead Manager of the Minnesota Municipal Bond ETF, as he talks with Scott Howard, VP, Investor Relations Manager, on May 5, 2021 to provide a fund overview and Q&A.
The Mairs & Power Minnesota Municipal Bond Exchange Traded Fund (ticker: MINN) is only ETF on the market that invests solely in Minnesota municipal bonds. Its regional focus and long-term view are consistent with Mairs & Power’s investing philosophy. The Fund has a high-quality, diversified portfolio that is actively managed and unlevered, and it has a low expense ratio of 39 basis points.
What MINN is buying
The Fund’s target is 60-70% bonds with ratings of AA and higher, 20-25% A bonds, and the balance in lower-rated bonds. We are adding lower-quality bonds only when we find attractive opportunities, and we are only buying bonds that we understand and whose purchase we can defend.
Half of the portfolio is in local General Obligation (GO) bonds, with over 10% in State of Minnesota GO bonds. We are avoiding appropriation-backed bonds except when there is a necessary purpose behind them. For example, we have purchased some Wright County Government Center lease-backed bonds.
We have access to over 95% of the primary market. Our long-term approach includes getting the best price we can, and pricing tends to be better in the primary market. We have been buying in the secondary market when we see opportunities there.
The Fund’s duration is a little bit longer because a significant portion of the portfolio consists of new issuance. We have been focused on keeping our weighted maturity on the shorter side. We are less comfortable with longer-dated, low-coupon bonds because they could introduce price volatility into the portfolio.
The weighted average maturity index against which the Fund is measured is about 12.5 years. At the end of April, MINN was at 11.6 years. We believe that this is better than our peers of similar quality, and relatively close to most of those of lower quality.
The MINN Team
Mairs & Power has been managing bonds, including municipal bonds, for decades, and the team overseeing MINN has extensive industry expertise:
Brent Miller, MINN’s portfolio manager, has worked on municipal bonds throughout his 10-year-plus investment industry career. He currently serves as board president of the Minnesota Society of Municipal Analysts.
Robert Thompson is Mairs & Power’s vice president and director of fixed income. He has more than 25 years of experience across all fixed income categories.
Heidi Lynch has been trading municipal bonds for more than 15 years. She has an abundance of market knowledge and market relationships.
Investors need a brokerage account to buy MINN. Depending on your brokerage account, hopefully there is a zero or very low commission to trade an ETF. In addition, there is no redemption fee and investors aren’t penalized when they take out their money. The ETF structure also offers more flexibility than a mutual fund to navigate capital gains. Lastly, all Fund holdings are published on the Mairs & Power website and are updated daily.
In measuring returns, we use the yield-to-worst metric. This is a the most honest measure on a look-forward basis of what investors can expect to earn. We prefer yield-to-worst to the SEC yield, which is backward looking and often overstates actual earnings.
Current Municipal Bond Market
Starting about 2016, yields on the 10-year Minnesota municipal GO bond and the 10-year Treasury rate began to diverge. Though there was some volatility in the market last year, we expect rates to remain tight in 2021. Supply is relatively constrained, and demand has heightened. If tax rates rise at either the federal or state level (or both), that would also be likely to keep bond ratios tight.
For any additional question please feel free to contact Scott Howard, firstname.lastname@example.org or 651-294-8309.
The statements and opinions expressed are those of the speakers and are as of the date of this call. All information is historical and not indicative of future results and subject to change.
Scott Howard is a registered representative of Foreside Fund Services, LLC.