While the U.S. based stock funds continue to suffer from investor caution, muni bond funds are continuing to attract investor attention. According to recently released Lipper’s data, muni bond funds have registered third best stretch of weekly inflows in history. Also muni bond markets registered longest streak of monthly gains in 24 years, according to a data released by BlackRock. Hence, it will be interesting to find which muni bond ETFs are gaining from this encouraging scenario.

Consistent Inflows in Muni Bond Funds

In a scenario when equity focused funds are witnessing significant outflows, muni bond funds continue to attract investor attention. According to Lipper, the U.S. based muni bond funds registered net inflows of $871 million for the week ending Aug 10, preceded by an inflow of $783.9 million posted a week earlier. The category saw inflows for consecutive 45 weeks, registering its third longest stretch in history.

While these funds attracted a total inflow of $27.9 billion in this winning streak, the four week moving average of net inflow came in at $862.9 million, as per Lipper. The data also showed that muni bond funds that focuses on high yield securities registered net inflow of $287.4 million for the week ending Aug 10, higher than earlier week’s inflow of $267.3 million.

Longest Stretch of Monthly Gains in 24 Years

Separately, BlackRock’s report showed that muni bond markets ended in the green in July, registering monthly gains for 13-strainght months, which was last witnessed in 1992. Moreover, the S&P 500 National Municipal Bond Index currently has yield of 2.6%, in contrast to 1.2% yield of the Barclays U.S. Treasury Index. If one considers muni bonds’ property of providing tax-free return, the yield on the same will be even higher.

Moreover, the Municipal Securities Rulemaking Board recently reported that trading volume of the U.S. municipal bonds jumped to $818.2 billion during the second-quarter of this year, largest volume witnessed in nearly three year. It also represents a 10.4%surge in trade volume from the year-ago period. The report also showed that buying activity rose nearly 8.1% year-on-year to $6.44 billion during the last quarter.

Will Bull Run Continue?

BalckRock’s report highlighted: “Performance in the muni market highlighted the premium being paid for income-producing assets.” It also said that “the ability to act as high-quality, low-volatility portfolio diversifiers” have played important role in boosting the demand for these securities. This also showed that investors have shrugged off dismal headlines like deteriorating credit quality in Puerto Rico and of other fiscally challenged issuers that had cast doubts about whether munis will continue their bullish run in 2016.

Ultra low yields across the world have made munis increasingly attractive to investors as compared to other fixed-income assets. Recently released data from Fitch Ratings showed that $11.4 trillion worth of sovereign bonds throughout the globe is suffering from negative yields. Though recently released robust jobs report raised speculations of a rate-hike next month, economic data including July’s retail sales and PPI came in discouraging and raised uncertainty about the rate hike. This is also likely to boost demand for muni bonds further.

Municipal bonds are an excellent choice for investors seeking a steady stream of tax free income. Usually the interest income from munis is exempt from federal tax and may also not be taxable per state laws, making them especially attractive for investors in the high tax bracket, looking to reduce their tax liability.

3 Muni Bond ETFs Gaining

We have highlighted three muni bond ETFs that have attracted significant investor attention in recent times banking on encouraging backdrop. These products have a decent Zacks ETF Rank #3 (Hold).

iShares National Muni Bond (MUB - ETF report)

The fund tracks the iShares National Muni Bond ETF and holds a large basket of 3,140 municipal bonds across a number of states and sectors. California munis take the top spot with nearly 22.9% of total assets, closely followed by New York at 20.2%. The product focuses on mid- and long-term securities with average maturity of 5.54 years and effective duration of 4.80 years. MUB is one of the largest and most popular products in the national munis space with AUM of over $7.5 billion and solid average daily volume of more than 396,000 shares. The fund charges 25 bps in fees per year from investors and is up nearly 2.5% in the year-to-date time frame. The product has witnessed an inflow of nearly $192.58 million over the past one-month period.

VanEck Vectors High-Yield Municipal ETF (HYD - ETF report)

This product tracks the Barclays Municipal Custom High Yield Composite Index. The fund has amassed $2.3 billion in its asset base while charging 35 bps in annual fees. Volume is solid as it exchanges nearly 569,000 shares per day. With 1,486 securities in its basket, the fund is heavily tilted toward long-term securities with effective duration of 8.2 years and average maturity of 20.33 years. Like the above mentioned two funds, HYD also has California and New York as top two states, in terms of states allocations. The ETF gained nearly 4.7% in the year-to-date time frame. The product has witnessed an inflow of nearly $109.52 million over the past one-month period.

SPDR Nuveen Barclays Short Term Muni Bond ETF (SHM - ETF report)

This product is also a popular choice for muni bond investing with AUM of $3 billion and an average volume of 321,000 shares a day. Holding 886 securities in its basket, the fund is spread across a variety of states with California and New York munis making up for a combined share of more than 33%. The fund tracks the Barclays Managed Money Municipal Short Term Index. The ETF is skewed toward the short-term maturity securities, resulting in average maturity of 3.08 years and modified adjusted duration of 2.94 years. Expense ratio came in at 0.20%. SHM has gained nearly 0.9% so far this year and saw an inflow of $58.94 million in trailing one-month period.