FFixed income investors are branching out into municipal bond exchange traded funds to capitalize on the ease of use and low costs of this nifty investment tool.

Muni ETFs had $ 80 billion in assets under management at the end of the third quarter, up from some $ 50 billion two years ago, the Wall Street Journal reports. Going forward, Citigroup predicts that equipped ETFs will accumulate $ 125 billion by December 2022.

Investors injected record amounts of liquidity into all types of ETFs in 2021. Many have been drawn to ETFs equipped for their easy access to large tranches of low-cost tax-exempt returns under flexible trading conditions. throughout the day, similar to common stock. Many have also favored the tax-exempt status of the fixed income category, particularly amid concerns about potential new tax laws.

The proliferation of ETFs has contributed to the change underway in the municipal market by almost $ 4 trillion. For decades, retail investors have turned to mutual funds, which trade once daily at the closing price, to access a large and diversified portfolio of municipal bond exposure. On the flip side, ETFs trade in real time during normal trading hours, which has generally been more appealing to investors who got stuck at home during the pandemic.

“New investors tend to be more comfortable with the structure of ETFs,” Steve Laipply, US head of bond ETFs at BlackRock Inc., which controls $ 36 billion in bond ETFs, told the WSJ. “It’s this desire for transparency and agility in trading.”

Additionally, the ETF structure takes up more of the traditional mutual fund space due to lower costs. Muni ETFs charge about a quarter of a percentage point less as a share of assets than their mutual fund counterparts with open-ended bonds, according to data from Morningstar Direct. Among passive funds that attempt to mirror a benchmark, the difference is 0.03%.

ETF investors interested in the equipped space may also consider targeted ETF strategies, such as the popular IShares National Muni Bond ETF (NYSEArca: MUB), the Vanguard Tax-Exempt Bond ETF (NYSEArca: VTEB), and the SPDR Nuveen Bloomberg Municipal Bond ETF (NYSEArca: TFI).

For more news, information and strategies visit the Fixed Income channel.

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