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.)
