Strong Muni ETF Inflows Continue

Investors drawn to funds with a balance of interest rate risk and dividends.

Reviewed by: Patrick Luby
Edited by: Patrick Luby

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 FlowsMunicipal Bond Mutual FundsMutual Funds/ TotalMunicipal ETFsETF/ 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.)


TickerFundAUMAugust FlowsYTD FlowsDividend YieldDuration
PVIPowerShares VRDO Tax-Free Weekly Portfolio $62.3  $(1.3) $(16.2)0.01%0.01
IBMEiShares iBonds Sep 2016 Term Muni Bond ETF $119.1  $(2.7) $(18.5)0.61%0.11
MEARiShares Short Maturity Municipal Bond ETF $32.6  $2.5  $2.5 0.71%1.00
IBMFiShares iBonds Sep 2017 Term Muni Bond ETF $197.0  $1.4  $19.2 0.84%1.07
SMMUPIMCO Short Term Municipal Bond Active ETF $68.9  $-    $12.6 0.87%1.81
SUBiShares Short-Term National Muni Bond ETF $1,110.0  $42.6  $127.5 0.71%1.91
IBMGiShares iBonds Sep 2018 Term Muni Bond ETF $134.4  $7.7  $29.4 0.84%2.00
PRBVanEck Vectors Pre-Refunded Municipal Index ETF $19.8  $-    $-   0.79%2.47
SMBVanEck Vectors AMT-Free Short Municipal Index ETF $273.0  $3.5  $8.0 1.03%2.74
SHMSPDR Nuveen Barclays Short Term Municipal Bond ETF $3,110.0  $98.3  $337.7 0.63%2.82
IBMHiShares iBonds Sep 2019 Term Muni Bond ETF $112.1  $2.6  $29.5 0.95%2.89
SHYDVanEck Vectors Short High-Yield Municipal Index ETF $135.5  $10.1  $29.0 2.73%3.53
IBMIiShares iBonds Sep 2020 Term Muni Bond ETF $112.9  $6.5  $45.2 1.10%3.75
IBMJiShares iBonds Dec 2021 Term Muni Bond ETF $49.7  $3.9  $32.5 --4.58
MUNIPIMCO Intermediate Municipal Bond Active ETF $262.1  $5.5  $19.1 2.10%4.69
GMMBColumbia Intermediate Municipal Bond ETF $5.5  $0    $0   2.58%5.20
NYFiShares New York Muni Bond ETF $246.4  $5.7  $39.8 2.23%5.26
IBMKiShares iBonds Dec 2022 Term Muni Bond ETF $46.2  $5.3  $38.0 --5.40
MUBiShares National Muni Bond ETF $7,600.0  $181.4  $1,482.9 2.15%5.47
VTEBVanguard Tax-Exempt Bond Index Fund ETF $475.9  $73.5  $324.2 1.39%5.47
CMFiShares California Muni Bond ETF $649.5  $30.3  $168.3 2.04%5.73
FMBFirst Trust Managed Municipal ETF $78.5  $0    $34.3 2.91%6.28
PZTPowerShares New York AMT-Free Municipal Bond Portfolio $60.6  $1.3  $8.8 3.30%6.32
PZAPowerShares National AMT-Free Municipal Bond Portfolio $1,400.0  $2.6  $382.9 3.25%6.64
ITMVanEck Vectors AMT-Free Intermediate Municipal Index ETF $1,610.0  $64.3  $238.1 1.99%6.65
PWZPowerShares California AMT-Free Municipal Bond Portfolio $192.7  $46.8  $71.9 2.94%6.67
TFISPDR Nuveen Barclays Municipal Bond ETF $1,890.0  $(110.7) $221.7 1.42%6.76
HYMBSPDR Nuveen S&P High Yield Municipal Bond ETF $525.5  $11.9  $89.0 3.75%6.85
HYDVanEck Vectors High-Yield Municipal Index ETF $2,340.0  $93.4  $497.5 3.89%7.15
RVNUDeutsche X-trackers Muni Infrastructure Revenue Bond ETF $48.5  $(5.5) $21.8 2.51%8.78
MLNVanEck Vectors AMT-Free Long Municipal Index ETF $186.8  $4.2  $64.2 2.73%9.25
XMPTVanEck Vectors CEF Municipal Income ETF $118.0  $5.8  $50.8 4.35%9.51
BABPowerShares 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 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.


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