June 14, 2019

Municipal Debt Funds Continue to Attract Net New Money

by Tom Roseen.

Despite U.S. equity markets rallying during the Lipper fund-flows week ended June 12, 2019, mom and pop fund investors appeared quite content to sit on the sidelines, presumably, until the trade tiffs the U.S. is engaged in with China and Mexico can be straightened out.

Over the most recent fund-flows week, equity and taxable bond mutual funds (excluding ETFs) suffered net redemptions of $4.9 billion (their seventeenth consecutive week of net outflows) and $514 million, respectively. Meanwhile, money market and municipal bond funds took in $12.9 billion and $778 million (their twenty-third consecutive week of net inflows), respectively.

Year to date, the average equity fund has returned a handsome 13.80%, with U.S. Diversified Equity Funds (+15.09%) outpacing their Sector Equity Fund (+13.45%) and World Equity Fund (+11.71%) cohorts. However, mounting uncertainty surrounding trade agreements, global growth, and direction of the market has some pundits voicing concerns about recessionary pressures—and fund investors taking their collective foot off the gas pedal.

Over the same period, fund investors have been net redeemers of equity funds (excluding ETFs), withdrawing a net $55.1 billion, while being net purchasers of taxable bond funds (+$73.6 billion), money market funds (+105.9 billion), and municipal bond funds (+$39.3 billion).

Ignoring prospects of interest rate hikes over the last year-and-a-half, investors continued padding the coffers of bond funds—which have recently turned into a boon of sorts with the yield curve shifting down—as investors looked for safe-haven alternatives to equities and yield producing instruments. Year to date, the average taxable bond fund has returned 5.39%, while the average tax-exempt bond fund posted a 4.27% return.

On the municipal bond fund side, national municipal bond fund issues attracted the lion’s share of net new money, taking in $32.9 billion year to date, with Intermediate Muni Debt Funds (+$12.9 billion) taking in the largest draw, followed by General & Insured Muni Debt Funds (+$10.3 billion) and High Yield Muni Debt Funds (+$8.7 billion). On the single state side of the municipal bond fund universe, California Intermediate Muni Debt Funds (+$1.9 billion) attracted the largest sum of net new money, followed closely by its California Muni Debt Funds (+$1.8 billion) cousin.


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