The ETFs highlighted in the table below with durations between 4 and 8 have attracted $3.7 billion in new inflows so far this year—that’s over 75% of the $4.8 billion total. (All data in the table are as of 8/31/16, with the exception of the duration for VanEck Vectors CEF Municipal Income ETF (XMPT), which is as of 6/30/16.)
Higher duration is not necessarily a bad thing. It is just a measure of risk, and is helpful when considered in the context of the overall portfolio. For insight on how to select the right muni bond ETF for you, see my earlier article, How To Pick The Right Muni Bond ETF.
Total returns for the muni market and for muni ETFs have been generally positive for the year. The S&P Dow Jones Municipal Bond Index, which provides a broad benchmark of the market, was up 0.23% in August and is up 4.60% year-to-date.
The strong recent performance of the muni market has been helped at least in part by the heavy amount of municipal bond redemptions in the summer months—a combined total of $101 billion in June, July and August, according to data from Bloomberg.
Patrick Luby is a municipal bond portfolio strategy specialist and the author of www.IncomeInvestorPerspectives.com. He will be a speaker at the Inside ETFs Inside Fixed Income Conference in Newport Beach, California, Nov. 2-3.
At the time of writing, the author held none of the securities referenced. This is not a recommendation to buy, sell or hold any of the securities or strategies mentioned. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Information is based on sources believed to be reliable, but its accuracy is not guaranteed. Additional information is available upon request.