Municipal Debt Funds Attract Net New Money from Investors

Municipal debt funds had positive net flows of $1.1 billion for the fund-flows trading week ended Wednesday, January 30. This was the fourth straight weekly net inflow for the asset group, for a total increase of $4.4 billion. This four-week average of $1.1 billion is the highest for the muni debt fund group in six years, when it posted a four-week average net inflow of slightly more than $1.1 billion for the fund-flows week ended January 30, 2013. The group’s results in January represent a change in investor sentiment, as muni debt funds had suffered through four consecutive monthly net outflows (for a total negative net flow of $13.3 billion) to close out 2018.

Investors appear to have a greater appetite for risk in the muni debt fund space, as the lower rated and longer-term peer groups took in the most net new money in January. Funds in the High Yield Muni Debt Funds group had the largest single net inflow for the month (+$1.6 billion), followed by Intermediate Muni Debt Funds at +$1.4 billion. As per Lipper’s methodology, intermediate funds hold debt that has an effective maturity within the five- to ten-year range. Parsing the data a little further indicates the national muni classifications were responsible for the majority of the net inflows (+$3.7 billion), while single-state muni bond funds contributed $732 million to the total net inflows.

The net inflows were widely dispersed for the month as more than 250 muni bond funds saw their coffers grow in January. The five largest individual net inflows for the month belonged to BlackRock Strategic Municipal Opportunities Fund (+$373 million), Nuveen High Yield Municipal Bond Fund (+$368 million), Goldman Sachs High Yield Municipal Fund (+$296 million), American Funds Tax-Exempt Bond Fund of America (+$222 million), and BlackRock National Municipal Fund (+$210 million).