ETFs Claim More of Muni Market – The Wall Street Journal

December 23, 2021 by No Comments

Municipal bond investors are piling into exchange-traded funds, attracted by low costs and the ability to trade quickly.

Muni ETFs held $80 billion as of the end of the third quarter, up from less than $50 billion two years ago, Federal Reserve data shows.


projects they will hold $125 billion by December 2022.  

Investors this year spent record amounts of cash buying shares in all types of ETFs, baskets of securities that trade as easily as stocks and typically track indexes. They are drawn to muni ETFs for their easy access to tax-exempt yield at low cost under flexible trading conditions, especially with concerns about new taxes under a Democratic administration. ETF sponsors such as BlackRock Inc. report that muni ETFs have helped bring in client cash and fee revenue. 

But trying to track prices in real time can be tricky in a market where about 50,000 state and local governments sell debt and some bonds go years without changing hands. 

The proliferation of ETFs is part of a continuing shift in the nearly $4 trillion municipal market, where the typical investor once bought individual bonds and clipped coupons until maturity. For decades, retail investors have been moving to mutual funds, which they can trade once a day at the closing price. 

ETFs allow investors to watch prices move in real time and trade whenever they want as often as they want, an appealing feature for work-from-home investors accustomed to watching meme-stock dramas in the corner of their screens. 

“Newer investors tend to be more comfortable with the ETF structure,” said

Steve Laipply,

U.S. head of Bond ETFs at BlackRock Inc., which controls $36 billion in muni bond ETFs. “It’s this desire for transparency and nimbleness in trading.” 

About 50,000 state and local governments sell debt in the U.S. municipal bond market, funding projects such as highway construction.


Elijah Nouvelage/Bloomberg News

As a group, muni ETFs charge about a quarter of a percentage point less—as a share of assets—than open-ended muni bond mutual funds, according to a weighted average calculated by


Direct. For passive funds that track indexes, that difference is 0.03 percentage points. After-fee yields on investment-grade muni ETFs and mutual funds in 2021 through November were almost exactly the same. 

Investment adviser

Paul Winter

of Five Seasons Financial Planning in Salt Lake City, Utah, keeps most of the roughly $3 million in municipal debt he manages in passive ETFs, after shifting his clients from mutual funds over the past decade. He said he appreciates not having to worry …….



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