Bonds: Munis

Investors are shucking aside overpriced, actively managed funds and sinking money instead in less expense index ETFs, said Dave Nadig, financial futurist at research and consulting firm Vetta Fi., according to thinkadvisor.com.

 

Strong inflows have culminated from ETFs highlighted by dividend strategies, munis and high yield bonds, he continued.

 

Among most active investors, ETFs have emerged as the go to vehicle, Nadig continued. On top of that, for most investors, they’ve evolving into the default choice.

 

This year – in the eye of the worst worse financial markets in decades – the country’s $6.6 trillion ETF generated $375 billion in net inflows. And it’s been share and share alike as the wealth is spreading across the board. For example, positive inflows into equities, currencies and alternatives has reached into the billions of dollars, the site reported Nadig pointing out. 

 

“It’s been one of the circumstances where the entire ETF universe has caught a bid,” Nadig said.

 

A Fitch Ratings reports shows the likelihood that U.S. investors will continue to rachet up their fixed income exchange traded fund holdings, according to pioline.com.

 

On the heels of new guidelines kicking in in the Big Apple last December, Fitch indicated its rated 10 such ETFs. Doing so has helped ease the way for investors to maintain shares of them.

The muni market has seen sky-rocketing volatility the last ten days with the highest point since the onset of the pandemic. That volatility has hurt many investors as yields rose by over 11 basis points sending bond prices tumbling. Triggering this decline in muni bond prices was Fed Chair Powell’s hawkish turn which included tapering asset purchases and raising rates. This loss is positioning munis for their worst quarter in almost 30 years. Some muni bond issuers are pausing or flat out canceling their development in the wake of a flat out crisis.


Finsum: This could be a quarter for muni bonds which have a close pass through to the Feds target interest rate and are therefore more sensitive.

Muni ETFs have set a record for inflows this year drawing a whopping $83 billion. Bond buyers are fleeing the low yield big government debt with inflation risk and flocking to Muni funds which have more attractive fees and still have some after-inflation yield. Active funds are seeing a large uptick as a subsegment with big winners like JPMorgan Ultra-Short Muni Income ETF, and new active funds are popping up at a fast rate. Institutional investors see lots of growth in active fixed-income ETFs as more investors are chasing outperformance in a stagnant bond market. 


FINSUM: As the Fed comes down on the treasury market, muni’s are in a prime position to get yield pass through to fight against inflation.

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