Muni Bond DIFM is Growing

by Pat Luby

Screen Shot 2016-03-17 at 2.26.54 PMMuni Bond DIFM Ownership is Growing

Rates are low and the Fed is on hold; municipal finances are stressed and bond market liquidity is down. While there would seem to be lots of reasons for investors to be avoiding municipal bonds, individual investors were actually net buyers of municipal bonds last year—but not through the traditional means of adding individual bonds to their portfolios.

Last year, according to data from the Federal Reserve, fewer individual investors were opting for the DIY (“Do It Yourself”) model of managing individual bonds on their own, and there was growth in the use of professionally managed (“Do It For Me,” or DIFM) mutual funds and ETFs.

Data from the Federal Reserve show that direct individual investor ownership of municipal bonds declined by over $25 billion last year, however, indirect ownership through muni bond mutual funds and ETFs grew significantly.

 

2014

2015

Change

Total Outstanding

$3,652.4B $3,714.8B +$62.4B +2%
Households (direct)

$1,540.4B

$1,514.8B

-$25.6B

-2%

Mutual Funds

$657.7B

$705.4B

+$47.7B

+7%

ETFs

$14.6B

$18.5B

+$3.9B

+27%

The positive flows into mutual funds and ETFs are continuing this year. Through March 9, muni bond mutual funds have attracted $10.7 billion in new assets (according to the Investment Company Institute) and muni ETFs have added almost $1.5 billion (according to FactSet data).

Part of what may be driving the shift away from DIY into DIFM…..

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This is not a recommendation to buy, sell or hold any of the securities or strategies mentioned. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. At the time the article was written, the author did not have any positions in the securities or strategies mentioned. The opinions expressed and the information contained herein is based on sources believed to be reliable, but its accuracy or appropriateness is not guaranteed. Past performance is interesting but is not a guarantee of future results. Investments in bonds, and fixed income funds or ETFs are subject to gains/losses based on the level of interest rates, market conditions and changes in credit quality of bond issuers. Additional information available upon request.
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