For financial advisors, municipal bond exchange traded funds (ETFs) have been a boon and a burden at the same time.
The plus side is that the new muni ETFs provide a safer, lower cost way of investing in municipal bonds than either municipal bond mutual funds or direct investments. The bad news? Today’s investment climate is so crazy that market watchers warn that the muni market could be rough this year.
As an investment vehicle, muni ETFs have a lot going for them. Generally, fees are about half of a municipal bond fund-0.20% to 0.40%, compared to 0.50% to 0.80%. Right now, even if it’s just half a percent you’re saving, that’s a lot of money.
Muni ETFs are also more transparent than most bond funds, which only have to report what they held last quarter. They’re slightly more liquid, too. Unlike mutual funds, which can only be sold at the net asset value of the prior day’s closing price, muni ETFs can be sold at the prevailing price any time during the day.