Market Vectors CEF Municipal Income ETF (XMPT)
At first blush, the Market Vectors CEF Municipal Income ETF’s (XMPT) 5.84% dividend yield may not be enough to get your heart pumping. That is, until you realize that dividend yield is actually tax-free. Meaning, if in you’re in the 33% tax bracket, you’d have to earn a 10% dividend yield to get the same amount of income elsewhere.
The secret is that XMPT invests in closed-end funds (CEFs) that invest in tax-free municipal bonds. CEFs are a kind of combination of ETFs and traditional mutual funds. While they can invest in anything, the bulk of CEFs are in the muni bond space.
XMPT tracks 85 of the largest muni bond CEFs and uses their underlying leverage to produce a big tax-free dividend yield for its shareholders. Is it a quirky dividend ETF? Very much so. But it is one of the biggest ways investors can get a high dividend yield tax-free. XMPT’s rival — the iShares National AMT-Free Muni Bond (MUB) — only pays around 2.95% in dividends.
Expenses for the XMPT dividend ETF run 1.65%.