The Bottom Line:  Sustainable municipal bond funds performed well in June, but the variety of funds means that investors should conduct due diligence before investing.

Top 10 Performing Sustainable Municipal Bond Funds in June 2023

Notes of Explanation:  Top ten funds include only the best performing fund share class in cases where multiple share classes are offered.  Performance intervals to June 30, 2023.  Sources:  Morningstar Direct and Sustainable Research and Analysis

Observations:

• Global taxable high yields aside, US high yield municipal securities delivered the best fixed income returns in June.  The Bloomberg High Yield Municipal Total Return Index recorded a gain of 1.77% while long-term municipal bonds weren’t far behind at 1.25%.  At the same time, the Bloomberg Municipal Bond Index registered a 1.0% total return as contrasted to the Bloomberg US aggregate Bond Index that gave up 0.36%.

• While uncertainties persist around stickier-than-expected inflation, higher interest rates and slowing economic growth, the continuing strength in municipal fundamentals and the higher level of yields may be contributing to positive sentiments in the municipal market that drove prices higher.
• Against this backdrop, the small and diverse universe of sustainable municipal bond funds, consisting of 18 mutual funds and ETFs with $1.8 billion in net assets, including active and passively managed funds, general, state specific as well as thematic funds, posted an average return of 0.81%, with returns ranging from a low of 0.3% to a high of 1.31%.  Over the last three months and year-to-date intervals, this segment registered average returns of -0.09% and 2.29%, respectively.  The variety of funds, fund types, fund sizes and varying expense ratios mean that investors should conduct additional due diligence before investing.
• The top ten performing funds in June, calculated by recording only the best performing fund share class in cases where multiple share classes are offered, posted a higher 1.1% average return.  As a group, these funds delivered an average positive 0.22% return over the trailing 3-months and 2.76% year-to-date.
• The best performing fund in June, the Invesco Environmental Focus Municipal Fund Y, benefited from its almost 24-year average weighted maturity.  This $85 million thematic fund seeks to invest primarily in municipal securities issued by issuers involved in projects or technologies with high potential positive environmental impact, as determined by Invesco using its proprietary evaluation system, in areas such as land, water and energy conservation. Along with its fundamental analysis, Invesco evaluates whether the investment meets the fund’s standards for high potential positive environmental impact.