AllianceBernstein to Convert Bond, Muni Mutual Funds to New ETFs

(Bloomberg) — AllianceBernstein LP plans to convert three of its fixed-income mutual funds into exchange-traded funds, underscoring the growing popularity of the lower-cost investment product. 

The asset manager is looking to flip two municipal-bond funds and one investment-grade corporate debt fund into actively-managed ETFs, according to a filing with the US Securities and Exchange Commission.

The muni ETFs will be focused on California and New York securities and will be called the AB California Intermediate Municipal ETF and the AB New York Intermediate Municipal ETF, honing in on investor demand in the high-tax states. Meanwhile, the new AB Core Bond ETF will invest in corporate bonds, US government debt and agency securities — maintaining an average minimum portfolio rating of A, according to the filing. 

A spokesperson for AllianceBernstein declined to comment. 

Muni ETFs drew in more than $16 billion in 2024 — marking the 11th consecutive year of asset gains for the financial instruments. Investors favor the products’ lower cost and tax efficiency over more expensive mutual funds. AllianceBernstein’s two new muni funds will have an expense ratio of 0.27%, according to the filing. The corporate-bond ETF will have a 0.28% management fee. 

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Asset managers launched more than two dozen new muni ETFs last year to meet investor appetite for liquidity and passive management, according to data collected by Bloomberg.

“ETFs have the advantage of being the cool kid on the block right now,” said Dora Lee, director of research for Belle Haven Investments.

Some of the world’s largest investment advisory firms, including Fidelity Investments and Franklin Templeton, also recently converted municipal bond mutual funds into ETFs, indicating the growing investor popularity of ETFs versus mutual funds, Lee said. 

Municipal ETFs have amassed more than $150 billion of assets as of this month, according to data compiled by Bloomberg. BlackRock’s MUB and Vanguard’s VTEB are the market’s largest funds, each with about $38 billion of assets, the data shows. 

“There is a large cohort of investors who do not have enough size in their portfolios to be able to build a properly diversified portfolio of individual bonds, and the ETF provides an easy mechanism to invest in munis, and then to easily add on additional shares,” said Pat Luby, senior municipal strategist at CreditSights Inc.