Muni ETFs: $2B & Counting For 2017

Muni ETFs: $2B & Counting For 2017

While trailing last year’s flows, muni bond ETFs are offering decent returns.

Reviewed by: Patrick Luby
Edited by: Patrick Luby

Patrick Luby is the municipal strategist at CreditSights Wealth.

With most municipal bond total return indices strongly positive, year-to-date net flows into muni bond ETFs have now eclipsed the $2 billion mark, although the pace of inflows is slower than last year, when $3.2 billion was added in the same period.  

(Muni market performance at the same point last year was very similar to this year: As of 6/23/16, the BofAML Muni Index was up 3.6%, while this year it is up 3.9%). Note that the YTD total return for the 7- to 12-year index lags the 22+ year index by only 10 basis points, providing a reminder that it is not always necessary to take on maximum risk to earn a reasonable return. 



Even though total returns are positive, investors appear to be cautious in reinvesting the more than $35 billion of principal returned from called or matured muni bonds so far this month. While it is too early to fully evaluate this year's reinvestment activity, month-to-date flows into muni mutual funds and ETFs combined are just over $1 billion. (See Muni ETFs: No Summer Vacation for additional information about muni market redemption flows.)

Investors who want to maintain or increase muni exposure while seeking specific bonds may wish to consider the larger muni ETFs as liquid ways to access the market for a short-term time period.

As can be seen in the Muni ETF table below, the largest muni ETFs support significant trading volumes over and above their net asset flows. Investors, especially temporary investors, should be cautious in selecting muni ETFs, as not all funds have similar demand and liquidity.


In fact, it was announced last week that one of the smaller muni ETFs, the Columbia Intermediate Municipal Bond ETF (GMMB), with $5.3 million in assets under management, will be closed in August. (Muni investors should also be aware that has added a new category to be able to search for taxable municipal ETFs, which, as of now, includes only the PowerShares Taxable Municipal Bond Portfolio (BAB).

The enhancement provides the opportunity to remind investors that taxable municipals can often be an attractive alternative to other taxable bonds, with the additional benefit of a different credit risk profile.)



Right now, the 10- to 15-year part of the muni bond yield curve is fairly steep. The 10-year spot captures 77% of the 30-year yield, but the 15-year spot offers 92% of the max yield. Some investors may find value extending within this part of the curve (as of 6/23/17, based on the AP MBIS muni curve).

Patrick Luby is the municipal strategist at CreditSights Wealth. As of this writing, neither the author nor his firm held positions in the securities mentioned. For more information or feedback, please contact us at [email protected] or call us at 212-340-3898 or 1-800-460-3320. This article is not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice. CreditSights Wealth publishes investment research but does not recommend the purchase or sale of financial products or securities, and does not give personalized financial or investment advice. Recommendations made in a report may not be suitable for all investors. See Important Disclosures at


Patrick Luby is the municipal strategist with CreditSights Wealth and has decades of experience in the municipal bond market.