Municipal Bond ETFs and Their Underlying Indexes – MUB, SHM, and TFI

A distinctive feature of this type of bonds is that they are issued by the state, local governments and agencies, so the interest incomes are exempt from tax. Wrapping them together into ETF format could provide further diversification benefit, so there is an array of municipal bond ETFs, with MUB, SHM and TFI ranked top places based on their AuMs – $8.24 billion, $3.44 and $2.39 billion respectively.

MUB, The iShares National Muni Bond ETF, launched in September 2007 by BlackRock, charges a relatively high expense fee at 0.25%, and its 3-year annualized return is 3.25%, the 5-year annualized return is 2.75%. It holds 3230 securities and the underlying index is S&P National AMT-Free Municipal Bond Index. To elaborate a bit more about the construction of this index: It includes all bonds in the National index with maturity terms spreading from intermediate-term to long-term. A rating of at least BBB- by Standard & Poor’s, Baa3 by Moody’s, or BBB- by Fitch, except in the case of a pre-refunded/escrowed to maturity bond. A bond must be rated by at least one of the three rating agencies in order to qualify for the index. The original offering amount was at least US$ 100 million.

SHM, SPDR Nuveen Barclays Short Term Municipal Bond ETF, issued by State Street Global Advisors in October 2007 has since accumulated $3.44 billion assets underneath, with 1037 holding securities. It follows Bloomberg Barclays Managed Money Municipal Short Term Index. Therefore, the year to maturity is less than 5 year and it emphasizes high credit quality? As a result, this fund is not sensitive to interest rate but also yield a modest return – only ~1% annualized.

TFI, SPDR Nuveen Barclays Municipal Bond ETF, also issued by State Street Global Advisors back in September 2007, has $2.39 billion AuM. It holds 1827 bond securities, tracks Bloomberg Barclays Municipal Managed Money Index, and tilts slightly toward the intermediate part of the curve, though the bulk of its holdings are long-term bonds, emphasizing more interest rate risk than credit risk. The annualized return of 3 years is 3.66%, and 5 years annualized return is 3.14%.

Compare their price performances over the last decade.


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