SSgA data indicate retail investors are subject to significantly higher transaction costs in individual investment-grade municipal bonds compared to what they pay to get access to ETFs such as SHM and TFI.

“While retail investors’ trading costs for individual bonds has declined over the last few years, those costs remain, on average, significantly higher than ETF spreads on the secondary market,” said SSgA. “More efficient secondary markets with lower transaction costs via the ETF wrapper can lead to lower overall costs for retail municipal bond investors, while still offering the tax benefits of holding individual municipal bonds.”

SHM has an option adjusted duration of 2.76 years while the same metric on TFI is 6.61 years.

For more information on the munis market, visit our municipal bonds category.

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