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When Capital Group lately added a muni exchange-traded fund to its tax-aware portfolio collection and mannequin portfolios, it was the results of the demand for actively managed fixed-income ETFs and the assumption the combination would serve a wider array of advisors.
“I believe the place we noticed the demand coming from [was] a number of advisors who have been transitioning their practices to be solely or predominantly ETF utilization,” mentioned Scott Davis, head of ETFs at Capital Group. “You noticed this in all probability rising first within the [registered investment advisor] channel, however then actually shifting throughout channels.”
These advisors have been constructing mannequin portfolios they wished to execute particularly by the ETF automobile, he mentioned.
Capital Group lately added its Capital Group Municipal Excessive-Earnings ETF to its conscious portfolio collection and mannequin portfolios, becoming a member of the agency’s two different muni ETFs in mannequin portfolios. All three muni ETFs could be a part of a mannequin or standalone.
The agency joins a small however rising variety of outlets which have added — or thought-about including — muni ETFs to their mannequin portfolios. This comes amid explosive ETF progress. Muni possession of ETFs grew to $149.8 billion within the second quarter of 2025, up 5.3% quarter-over-quarter and 20.6% year-over-year.
“Of their early days, ETFs have been easy beta merchandise, however over time ETFs matured into a classy universe of numerous funding automobiles with extremely specialised exposures,” Jon Maier, a chief ETF strategist at J.P. Morgan, and Shannon Ahern, an ETF strategist on the agency, wrote in late Might. “That enlargement turned ETFs into engaging elements for mannequin portfolios, which traditionally have been constructed with mutual funds.”
Nonetheless, “all these mutual fund fashions are going the way in which of the dodo, and you’ve got extra people utilizing now actively [or passively] managed ETFs, alongside third-party index ETFs,” mentioned Brett Sheely, vp and head of ETF specialists at AllianceBernstein.
Total, many companies have efficiently built-in ETFs into their mannequin portfolios, with energetic ETFs changing into a bigger half lately, Maier and Ahern famous.
For munis, the mannequin enterprise will gravitate towards ETFs, however it will likely be a gradual transition, as mutual funds stay a really wholesome and highly effective funding software, mentioned Greg Corridor, a managing director and head of U.S. international wealth administration at PIMCO.
“Adoption of muni ETFs in mannequin portfolios is rising. Whereas it isn’t a driving drive nor reshaping the trade, on the margin, fashions are gaining popularity after which that ought to gasoline elevated curiosity in ETF fashions,” Corridor mentioned.
PIMCO, as an example, started together with MUNI, a muni ETF, in mannequin portfolios 5 years in the past. As an energetic, high-quality core municipal bond resolution that works effectively in tax-aware options, MUNI is a robust slot in its mannequin enterprise, he mentioned.
A part of the concerns so as to add muni ETFs to mannequin portfolios comes from the recognition of fixed-income, with charges the place they’re, and the ahead view on Federal Reserve actions, as market contributors are fairly comfy within the asset class, Corridor mentioned.
One of many advantages of ETFs is how simple they’re to transact, which positions them effectively for mannequin portfolios, he mentioned.
“Should you’re shifting round allocations for 1000’s and 1000’s of purchasers with perhaps six or seven line-items apiece, with the ability to transact by the alternate and be greenback sure about pricing makes a giant distinction,” Corridor famous.
Merchandise with muni ETFs, like a mannequin portfolio, have existed for a while, AllianceBernstein’s Sheely mentioned.
There are companies that use muni ETFs because the fixed-income publicity designed for taxable accounts, he mentioned.
A part of the explanation these are widespread is that fashions are usually not only for small accounts nor particular person retirement accounts, however they can be utilized “upmarket” and by high-net-worth traders, Sheely mentioned.
“ETFs are going to be a key constructing block in any mannequin portfolio sooner or later,” he mentioned.
AllianceBernstein doesn’t have muni ETFs in its mannequin portfolios, but it surely might take into account them for taxable traders, the place muni publicity is sensible if there’s curiosity, Sheely mentioned.
Nonetheless, the agency has 100% non-muni ETF fashions, which suggests incorporating a few of its energetic ETFs into its fashions, he mentioned.
“We did that as a result of that is the place the market’s going. We checked out our mannequin providing and mentioned, ‘What makes probably the most sense for traders? And having an all ETF mannequin is sensible,” Sheely mentioned.
At the moment, none of VanEck’s mannequin portfolios maintain any muni ETFs — because the fastened earnings part is principally USTs — the agency used to run a method that targeted on municipal bonds, mentioned Dylan Desai, a product supervisor at VanEck.
The issue, although, was the shortage of curiosity, he mentioned, so VanEck determined to implement fixed-income sleeves in a approach that is sensible for its purchasers by way of its complete asset allocation mannequin, referred to as Wealth Builder.
The agency at the moment doesn’t have plans so as to add munis again into its technique, however that might change if there’s sufficient curiosity from purchasers, Desai mentioned.
Outdoors of munis, VanEck has a number of ETFs in its mannequin portfolios, together with Wealth Builder Core and Wealth Builder Plus, the latter consists of Bitcoin and digital belongings, he mentioned.
“For purchasers who’re tax-sensitive, the muni market proper now’s incredible to entry in terms of producing earnings on a taxable equal foundation. It is tougher to discover a higher return profile than within the muni market,” Corridor mentioned.
Kathie O’Donnell contributed to this report.
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