Strong Muni ETF Inflows Continue

September 07, 2016

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
2014 Total  $31,156   $27,988  90%  $3,168  10%
2015 Total  $18,722   $14,792  79%  $3,930  21%
2016 YTD  $50,712   $45,865  90%  $4,847  10%
Assets  $679.88   $655.60  96%  $24.28  4%
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.)



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