Investors looking for tax-free income have a variety of choices when it comes to municipal bond funds — but Capital Group Municipal Income ETF (CGMU) is among the top performers, according to Morningstar. The exchange-traded fund, which launched in 2022, has a 30-day SEC yield of 3.35% and an expense ratio of 0.27%. The income earned by investors is exempt from federal taxes. In fact, municipal bonds’ tax advantage makes them a favored investment of the wealthy. “So far, this core-plus approach to the muni market has been a standout,” Morningstar associate director Elizabeth Foos wrote on Feb. 28 . She praised its “seasoned management team and a well-articulated, research-heavy investment strategy.” CGMU YTD mountain Capital Group Municipal Income ETF The ETF is ranked in the top quartile in Morningstar’s muni intermediate fund category year to date, and was as well in 2023 and 2024. There are three managers on the fund, including Courtney Wolf, CGMU’s principal investment officer. They all have different areas of expertise and each expresses their highest conviction ideas for the ETF, Wolf said in an interview with CNBC. They also lean on a team of analysts and traders to help in individual security selection, she said. Morningstar said the fund’s ample resources are solid. “The team has access to efficient data, research, and trading coordination, which allows it to be nimble when positioning the portfolio,” Foos said. “Yet a few long-standing themes add stability: The portfolio favors revenue bonds with strong, consistent cash streams and it avoids leverage, which can add to volatility.” These days, muni investors are getting paid solid yields. A muni bond with yield of 3.5% is going to have a taxable-equivalent yield north of 6% for those in the highest tax bracket, Wolf explained. “The muni market is on sound footing, largely speaking, from a fundamental standpoint, and that’s a result of what’s been a strong economic environment,” she said. While markets have been rocky in the face of uncertainty around the Trump administration’s tariffs and the economy, Wolf looks beyond the near-term volatility. “Volatility helps us generate alpha because it gives us opportunities,” she said. “As active managers, we don’t mind volatility, but we really think long term and build portfolios for clients with that long-term horizon in mind.” Finding opportunity Credit spreads in the muni market have narrowed a lot, similar to what is happening in the taxable market, Wolf noted. “I like this up-in-quality tilt, because you can move into higher quality and you don’t give [up] a lot of yield,” she said. She also looks at bond structure, in other words, those with a feature that makes it slightly quirky or difficult to analyze. “It might be the coupon, the call, the maturity, the combination of things that make bond structure, something where you get compensated a lot for that,” Wolf said. For instance, CGMU has holdings in planned amortization bonds, which provides exposure to the housing market largely through agency mortgage-backed securities, Wolf said. “It’s double A, triple A quality, but you pick up that extra compensation because there is a little bit of uncertainty around cash flows.” she explained. “It’s a little bit complicated to manage.” Wolf noted that housing is one area that is interesting right now from a relative value standpoint. Yet, it is just one part of the larger pie. The fund managers make a lot of small relative value decisions that add up over time, she said. “It’s going to be an interesting year,” Wolf said. “I suspect there will be a lot of opportunities to add value for active managers, which I think is super exciting.”
