December 20, 2019

High Yield Muni Debt Funds Set Records for Net Inflows in 2019

by Pat Keon, CFA.

Funds in Lipper’s High Yield Municipal Debt Funds (HM) peer group (including both mutual funds and ETFs) took in $421 million in net new money for the fund-flows trading week ended Wednesday, December 18. This was the group’s thirteenth-straight weekly net inflow and extended their streak to 49 net positive flows in the last 50 weeks.

This hot streak has enabled the HM group to grow its coffers by $18.9 billion for the year to date, which nearly doubles its previous largest annual net inflow ever of $10.1 billion back in 2006. Investor demand for this peer group has been consistent throughout 2019 as it took in roughly $5.0 billion in net new money in each of the first three quarters this year. The peer group stands just shy of $4.0 billion in net flows for Q4. These net inflows rank as the best four quarters in the group’s history (Lipper began tracking fund flows data in 1992).

Circumstances have aligned this year that have increased investor appetite for high yield muni debt funds and muni debt funds in general. In addition to the HM peer group setting net inflow records this year, muni debt funds as a whole have as well. The current year-to-date net inflow of $91.5 billion for all muni debt funds will outdistance their previous annual best of $81.1 billion in 2009. The muni debt fund peer groups have taken strength from the Federal Reserve cutting interest rates three times this year (which benefits all fixed income funds) and a change in the tax laws which has been a motivating factor for investors to seek out tax-exempt interest income to balance out higher federal taxes.

High yield muni debt mutual funds are responsible for the lion’s share of the net inflows (+$17.6 billion) for the peer group this year, while HM ETFs contributed $1.3 billion in net new money to the total. As would be expected from these totals, the largest individual net inflows within the peer group all belonged to mutual funds. The Nuveen High Yield Municipal Bond Fund led the way as its $3.8 billion net inflows more than doubled the second highest net positive flows of $1.8 billion from Goldman Sachs High Yield Municipal Fund. Rounding out the top five net inflows for the group were MainStay MacKay High Yield Municipal Bond Fund (+$1.5 billion), Invesco High Yield Municipal Fund (+$1.2 billion), and Nuveen Short Duration High Yield Municipal Bond Fund (+$1.1 billion).


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