Even with mounting concern over Puerto Rico’s ability to repay debt obligations and ongoing speculation about when the Federal Reserve will finally increase interest rates, municipal exchange traded and mutual funds remain popular with investors.
The munis market has been pressured this year by rising new issues, or greater supply, but Christopher Alwine, head of the municipal bond group at Vanguard, calculates that about 60% of muni issues this year will be refinancing, so the net new volume will be less than actual volume of new bonds, reports Kelley Holland for CNBC.
Some market observers also argue that the Federal Reserve would be loath to hike interest rates, especially after the weak jobs report and recent market volatility. With near-zero rates, munis may offer some attractive yields. [Alternative Income ETF Strategies]
“Municipal bond mutual fund investors added $528 million net to their accounts, and the funds now have had inflows for two of the past three weeks-their best showing since April,” according to Lipper data.
Recent inflows to municipal bond funds jibe with an overall positive attitude displayed by investors toward bond funds this month. Since the start of October, the four best ETFs in terms of assets added are all fixed income funds. Month-to-date, the Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD) has added nearly $37 million in new assets.
The Vanguard Tax-Exempt Bond Index Fund (NYSEArca: VTEB), which is not yet two months old, has $54 million in assets under management, according to Vanguard data. That makes VTEB one of the most successful ETFs to launch this year.
VTEB tries to reflect the performance of the Standard & Poor’s National AMT-Free Municipal Bond Index, which tracks investment-grade U.S. municipal bonds with at least a BBB- Fitch Rating and an effective duration between five and eight years. The underlying index includes debt issued by state, local governments or agencies. [Vanguard Launches Its First Muni Bond ETF]