The bulk of new assets have been in the top four muni ETFs. With $491 million in net new assets, the Vanguard Tax-Exempt Bond Index Fund ETF (VTEB) is ranked No. 1 so far in flows, but has also had strong trading volume as well, with $1.2 billion in shares traded.
In addition to VTEB, the VanEck Vectors High-Yield Municipal Index ETF (HYD), which has around 1% exposure to Puerto Rico, is up $351 million. It is noteworthy that the other long-duration, noninvestment grade muni ETF, the SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB), with 8.7% in Puerto Rico, is up by only $28 million in new assets.
Rounding out the top four asset gathers are: the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI), which is up $187 million, and the PowerShares National AMT-Free Municipal Bond Portfolio (PZA), which is up $175 million. Together, VTEB, HYD, TFI and PZA have attracted $1.2 billion in new assets.
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June will mark the beginning of the muni market’s annual “summer redemption season,” when maturing and called bond flows pick up.
June redemptions are expected to exceed $31 billion, likely resulting in strong reinvestment demand that could make it difficult to find appropriate replacement for redeemed bonds. Investors who will need to replace maturing or called bonds in the coming months may wish to consider using the most liquid muni ETFs as placeholders to maintain exposure until suitable bonds can be found.
At the time of writing, the author held no positions in the securities mentioned. Patrick Luby is the municipals strategist with CreditSights Wealth. He can be reached at [email protected], or call us at 212-340-3898 or 1-800-460-3320.
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