The municipal bond asset class is proving to be attractive in the current environment as credit fundamentals remain solid, even with some uncertainty.
Munis have gotten cheaper in 2025, relative to treasuries and corporates, while absolute yields for munis are near 4%, a historical high for the fixed income segment, Craig Ebeling, VP, ETF strategist for Fidelity Investments, said during VettaFi’s Income Investment Strategy Symposium.
Muni ETFs have taken in a combined $4.6 billion in net flows in 2025 to date. Of this, 85% of assets have gone into actively managed strategies, according to Ebeling. This is a notable emerging trend, as the majority of muni ETF assets under management are in passive strategies.
“Things are looking good but I think you also need to be discerning and have an active hand,” Ebeling said. “I think professional investors are identifying that this is a good market for munis, but you need to be active and understand the opportunity zones and where to go.”
One reason active is compelling is that it’s up to the asset manager and research team to identify the risk-reward spectrum. Depending on the environment and opportunity set, it may be worth seeking A or BBB opportunities if the return makes it worth the risk.
Additionally, active managers can do rigorous research to identify and seek out specific sectors that have attractive valuations and good opportunities, Ebeling said.
Ebeling named prepaid gas and housing as two examples of potential opportunity zones, whereas higher education and healthcare have shown cracks.
Active Muni Bond Exposure in a Tax-Efficient Wrapper
Fidelity offers the Fidelity Municipal Bond Opportunities ETF (FMUB), an active strategy that offers muni bond access in a tax-efficient vehicle.
FMUB invests in muni securities with interest exempt from federal income tax. The majority of holdings are investment-grade; however, it may invest up to 30% of its assets in lower-quality debt securities.
See more: What Can Muni Bond ETFs Bring to Portfolios in 2025?
For more news, information, and analysis, visit the ETF Investing Channel.
