Hartford Municipal Opportunities ETF

HMOP

Market cap $766M

The Hartford Municipal Opportunities ETF outperformed the Bloomberg Municipal Bond 1-15 Year Blend (1-17) Index during the quarter. Allocation and security selection within investment-grade port, airport, marina, industrial development, and housing sectors contributed to relative returns during the period. Duration and yield-curve positioning detracted from benchmark-relative returns as the Hartford Municipal Opportunities ETF was overweight longer maturities while municipal yields rose in that segment.

Municipal bonds are back to offer compelling risk-adjusted opportunities, but future decisions from Washington can either act as a tailwind or headwind. Municipal bond funds saw net inflows during 2024, first annual inflow since 2021—which was a record year. 2024 was a record year in municipal bond issuance. With attractive yields, the market may start to pay more attention to tax-equivalent yield advantages offered through municipal debt.

Specific to the muni market, perhaps the biggest surprise this year has been new issue supply that is running well ahead of expectations, up roughly 40% from last year. We think this increased summer issuance is likely the result of deals getting pulled forward, as issuers may be cautious about coming to market later in the fall ahead of what is likely to be an uncertain U.S. political climate. While municipal credit quality has already peaked, it is entering this period of moderating economic growth from a position of strength.