JPMorgan Chase & Co.’s $4.5 billion Intermediate Tax Free Bond Fund was among the laggards. Chloe Etsekson, a spokeswoman for JPMorgan, said more than 90 percent of the fund’s holdings were in lower-yielding AAA and AA rated bonds, a higher percentage than the index.
“VSITX is a low volatility fund for asset allocators looking to use the municipal portion of their overall fixed income allocation as the anchor and source of cash when fixed income volatility spikes,” she said in an e-mail. “It is structured to provide liquidity when other opportunities arise.”
BlackRock’s $7.6 billion, iShares National Muni Bond ETF, the biggest municipal ETF, outperformed 77 percent and 72 percent of national intermediate active managers, over 1 and 3 years, according to data compiled by Bloomberg.
The rise of “robo advisers," that use software programs to build portfolios could give a boost to ETFs, said Schenone. Web-based financial advisers Wealthfront Inc. and Betterment are using BlackRock’s as its only municipal holding, she said.
Vanguard, a pioneer in mutual fund indexing, has been a later entrant than BlackRock to passive municipal management. The world’s largest mutual fund manager started its first fund last year. Vanguard’s $460 million index fund pales in comparison to its actively managed $52 billion intermediate fund.
This year, the passive fund’s ETF shares returned 4.13 percent, beating the 3.92 percent posted by Vanguard’s actively managed intermediate fund.
“We believe fully in low-cost active but we also believe in indexing,” Alwine said. “Ultimately, it comes down to investor preferences.”
This article was provided by Bloomberg News.