New money continued to flow into municipal bond ETFs in August with year-to-date net flows now eclipsing the inflows for all of 2014 and 2015.
As shown below, even though they represent only 4% of the combined assets, muni bond ETFs are gaining market share from mutual funds by capturing 10% of the combined net flows.
Municipal Bond Fund Flows
|Total Muni Flows||Municipal Bond Mutual Funds||Mutual Funds/ Total||Municipal ETFs||ETF/ Total|
|Number of Funds||575||33|
Flows reported in millions of dollars. Assets in billions of dollars. Source: Investment Company Institute and FactSet Research Systems, Inc. Muni Bond Mutual Fund assets as of 7/31/16. Muni ETF assets as of 8/31/16.
As new money has come into the muni market this year, buyers appear to be taking a balanced approach to their choice of muni ETFs.
Thus the bulk of the money has not gone into the highest-yielding or the most conservative ETFs, but into the ones with a balance of a moderate amount of interest rate risk with a reasonable amount of dividends.
More than 75% of the inflows have gone into ETFs with durations between 4 and 8. (The durations on municipal bond ETFs range from nearly zero to almost 10). Duration is a measure of interest rate sensitivity, and provides an estimate of the percentage change in market value for an immediate 1% change in yields. So an ETF with a duration of 5 would be expected to decline in price by 5% if rates instantly moved higher by 1%. To learn more, read Duration As A Guide With Muni ETFs.)