Municipal Debt Funds Post Solid Fund Flows Gains

Funds in Refinitiv Lipper’s municipal debt fund classifications took in $857 million of net new money for the fund-flows week ended Wednesday, July 15. This was the tenth consecutive weekly net inflows for the group, with eight consecutive weeks having net positive flows of greater than $1 billion. The high-water mark during this streak was the $2.8 billion net intake for the fund-flows week of June 10, which is the second highest in the group’s history, trailing only the $2.9 billion net increase during the first week of 2020.

Similar to most fund asset groups (with the exception of money market funds) the fund flows results for tax-exempt bond funds were hit hard by COVID-19. After a strong start to the year, the group finished Q1 with net outflows of $21.6 billion after the pandemic fears gripped the investment industry. Muni debt funds have rebounded nicely since the end of Q1, taking in $16.4 billion net in Q2 and $1.9 billion so far in Q3. A couple of factors contributing to the muni debt fund flows rally were the pent-up demand caused by COVID-19 (fund investors parked a record-setting $724 billion in money market funds in Q1) and the fact that muni debt is a safe-haven investment in what are still uncertain times.

Tax-exempt mutual funds accounted for the majority of the group’s net inflows this week as they took in $655 million of net new money. The largest individual net inflows among mutual funds belonged to Goldman Sachs Short Duration Tax-Free Fund (+$157 million) and American Funds Tax-Exempt Bond Fund of America (+$64 million), while the largest net positive flows among tax-exempt ETFs was attributable to iShares National Muni Bond (MUB, +$104 million). Mutual funds (+$12.8 billion) also took in the bulk of the net new money for the group in Q2, with two Vanguard funds leading the way—Vanguard Short-Term Tax-Exempt Fund and Vanguard Intermediate-Term Tax-Exempt Fund had net positive flows of $1.6 billion and $1.4 billion, respectively. The aforementioned iShares National Muni Bond (MUB) paced the ETFs for Q2 with a net intake of $1.6 billion.