Investors pulled more than $500 million from municipal bond funds in March and the largest ETF tracking the fixed-income sector is selling at a discount to net asset value, suggesting the asset class is out of favor with investors.
The $3.6 billion iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB) traded below its net asset value for 15 days through March 28, the longest run since August 2011, Bloomberg News reports.
“Only when we see net asset values moving back toward positive territory are we likely again to start seeing fund inflows,” Mikhail Foux, a muni analyst at Citigroup, said in the article.
Muni bond ETFs have been volatile in recent months on lingering worries the asset class may lose its tax perks. Interest income from municipal bonds is tax-exempt at the federal level.
Illinois reaching a settlement with the Securities and Exchange Commission last month over charges it committed securities fraud when it issued municipal bonds from 2005 to early 2009 has also rattled investors. [Muni ETFs Fall on Tax Worries, Illinois Fraud Settlement]
MUB, the muni bond ETF, has normally traded at a premium since listing in 2007, so the discount could be seen as an opportunity for bargain hunters.