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.)

 

 

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.)

 

Ticker Fund AUM August Flows YTD Flows Dividend Yield Duration
PVI PowerShares VRDO Tax-Free Weekly Portfolio  $62.3   $(1.3)  $(16.2) 0.01% 0.01
IBME iShares iBonds Sep 2016 Term Muni Bond ETF  $119.1   $(2.7)  $(18.5) 0.61% 0.11
MEAR iShares Short Maturity Municipal Bond ETF  $32.6   $2.5   $2.5  0.71% 1.00
IBMF iShares iBonds Sep 2017 Term Muni Bond ETF  $197.0   $1.4   $19.2  0.84% 1.07
SMMU PIMCO Short Term Municipal Bond Active ETF  $68.9   $-     $12.6  0.87% 1.81
SUB iShares Short-Term National Muni Bond ETF  $1,110.0   $42.6   $127.5  0.71% 1.91
IBMG iShares iBonds Sep 2018 Term Muni Bond ETF  $134.4   $7.7   $29.4  0.84% 2.00
PRB VanEck Vectors Pre-Refunded Municipal Index ETF  $19.8   $-     $-    0.79% 2.47
SMB VanEck Vectors AMT-Free Short Municipal Index ETF  $273.0   $3.5   $8.0  1.03% 2.74
SHM SPDR Nuveen Barclays Short Term Municipal Bond ETF  $3,110.0   $98.3   $337.7  0.63% 2.82
IBMH iShares iBonds Sep 2019 Term Muni Bond ETF  $112.1   $2.6   $29.5  0.95% 2.89
SHYD VanEck Vectors Short High-Yield Municipal Index ETF  $135.5   $10.1   $29.0  2.73% 3.53
IBMI iShares iBonds Sep 2020 Term Muni Bond ETF  $112.9   $6.5   $45.2  1.10% 3.75
IBMJ iShares iBonds Dec 2021 Term Muni Bond ETF  $49.7   $3.9   $32.5  -- 4.58
MUNI PIMCO Intermediate Municipal Bond Active ETF  $262.1   $5.5   $19.1  2.10% 4.69
GMMB Columbia Intermediate Municipal Bond ETF  $5.5   $0     $0    2.58% 5.20
NYF iShares New York Muni Bond ETF  $246.4   $5.7   $39.8  2.23% 5.26
IBMK iShares iBonds Dec 2022 Term Muni Bond ETF  $46.2   $5.3   $38.0  -- 5.40
MUB iShares National Muni Bond ETF  $7,600.0   $181.4   $1,482.9  2.15% 5.47
VTEB Vanguard Tax-Exempt Bond Index Fund ETF  $475.9   $73.5   $324.2  1.39% 5.47
CMF iShares California Muni Bond ETF  $649.5   $30.3   $168.3  2.04% 5.73
FMB First Trust Managed Municipal ETF  $78.5   $0     $34.3  2.91% 6.28
PZT PowerShares New York AMT-Free Municipal Bond Portfolio  $60.6   $1.3   $8.8  3.30% 6.32
PZA PowerShares National AMT-Free Municipal Bond Portfolio  $1,400.0   $2.6   $382.9  3.25% 6.64
ITM VanEck Vectors AMT-Free Intermediate Municipal Index ETF  $1,610.0   $64.3   $238.1  1.99% 6.65
PWZ PowerShares California AMT-Free Municipal Bond Portfolio  $192.7   $46.8   $71.9  2.94% 6.67
TFI SPDR Nuveen Barclays Municipal Bond ETF  $1,890.0   $(110.7)  $221.7  1.42% 6.76
HYMB SPDR Nuveen S&P High Yield Municipal Bond ETF  $525.5   $11.9   $89.0  3.75% 6.85
HYD VanEck Vectors High-Yield Municipal Index ETF  $2,340.0   $93.4   $497.5  3.89% 7.15
RVNU Deutsche X-trackers Muni Infrastructure Revenue Bond ETF  $48.5   $(5.5)  $21.8  2.51% 8.78
MLN VanEck Vectors AMT-Free Long Municipal Index ETF  $186.8   $4.2   $64.2  2.73% 9.25
XMPT VanEck Vectors CEF Municipal Income ETF  $118.0   $5.8   $50.8  4.35% 9.51
BAB PowerShares Build America Bond Portfolio  $1,070.0   $80.4   $328.4  4.12% 9.64

 

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.

 

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