MUB vs. FBND: Comparing Two Municipal Bonds ETF Options for Tax-Conscious Investors

When selecting between bond funds, investors often face a tough choice between tax advantages and income potential. The municipal bonds ETF space offers compelling options, but not all funds are created equal. Two funds frequently compared are the iShares National Muni Bond ETF (NYSEMKT:MUB) and the Fidelity Total Bond ETF (NYSEMKT:FBND)—each appeals to income seekers but with distinctly different profiles.

Fund Overview: Municipal Bonds ETF Landscape

MUB, launched as a municipal bonds ETF focused exclusively on tax-exempt municipal securities, holds a portfolio of 6,163 investment-grade bonds across state and local issuers. By contrast, FBND takes a broader approach to the bond market, combining municipal exposure with significant allocations to energy and corporate credit, giving it a diversified but higher-risk character.

The contrast in philosophy matters greatly. MUB operates as a specialized municipal bonds ETF that prioritizes tax efficiency through municipal securities, while FBND functions as a general-purpose taxable bond fund that happens to include some municipal exposure. For investors specifically seeking municipal bonds ETF exposure, this distinction shapes the entire risk-return equation.

Expense Ratios and Yield Comparison: Which Municipal Bonds ETF Pays Better?

The cost structure reveals a meaningful gap between these two municipal bonds ETF options. MUB charges just 0.05% annually, while FBND’s expense ratio stands at 0.36%—a seven-fold difference. For long-term investors, this cost differential compounds substantially.

However, the income picture tells a different story. As of late January 2026, FBND offers a 4.7% dividend yield compared to MUB’s 3.13%. Over the past year, FBND also delivered 2.6% in total returns versus MUB’s 1.22%. Yet MUB’s current share price—roughly double that of FBND—means its absolute dividend payout remains higher for most investors, despite the lower percentage yield.

This tension between lower costs and higher yields defines the municipal bonds ETF comparison. Investors must decide whether FBND’s income advantage justifies its steeper annual fees, or whether MUB’s minimal costs provide better long-term value despite lower current payouts.

What’s Inside These Municipal Bonds ETF Portfolios

Asset quality varies significantly between these municipal bonds ETF offerings. FBND holds 4,459 positions with 67% rated AAA (the highest credit tier), though it also allocates up to 20% to lower-quality BBB-rated debt—a deliberate tilt toward higher-yielding but riskier securities.

MUB, the pure-play municipal bonds ETF, concentrates on investment-grade municipalities: approximately 61% in AA-rated bonds with the remainder split between AAA and A-rated holdings. Zero allocation to U.S. government debt means MUB maintains exclusive focus on municipal issuers across its 6,163 holdings.

This compositional difference explains the yield gap. FBND’s corporate credit exposure and lower-rated debt naturally generate higher coupons. MUB’s municipal bonds ETF structure limits it to whatever rates municipalities can offer—typically lower than corporate alternatives, but with tax benefits attached.

Five-Year Risk and Performance: Municipal Bonds ETF Volatility

The bond market’s gradual recovery from the 2022 downturn has exposed different risk profiles between these municipal bonds ETF competitors. MUB experienced a maximum drawdown of -11.88% over five years, while FBND saw steeper declines of -17.23%. A $1,000 investment in MUB five years ago would have grown to approximately $922, whereas the same investment in FBND would have reached $862—reflecting both the higher yields and higher volatility of FBND’s corporate-heavy allocation.

Beta measurements (which quantify price swings relative to the S&P 500) show MUB at 0.24 versus FBND’s 0.29, confirming that municipal bonds ETF stability, at least among these two options, favors MUB’s specialized approach. Assets under management also reflect scale differences: MUB manages $41.85 billion compared to FBND’s $23.91 billion.

Tax Benefits and the Investor’s Dilemma

The defining advantage of municipal bonds ETF exposure through MUB lies in tax exemption. Federal income taxes—and often state income taxes depending on your residence—don’t apply to municipal bond interest. For high-income earners in elevated tax brackets, this tax shield significantly amplifies after-tax returns.

FBND offers no such shelter. Its taxable bond structure means all interest income faces federal taxation at ordinary rates, potentially trimming real returns by 25-40% depending on your tax situation.

Yet this tax advantage doesn’t tell the whole story. If federal interest rates decline dramatically—a scenario that would boost bond prices inversely—municipal bonds ETF investors still benefit. Current market conditions suggest gradual recovery in the bond space rather than sharp appreciation events. Quick gains remain unlikely unless an external shock occurs, such as unexpected Fed policy changes.

Choosing Between These Municipal Bonds ETF Options

For conservative, tax-conscious investors seeking stable income with minimal costs and lower volatility, a municipal bonds ETF like MUB aligns well. The 0.05% expense ratio and tax-exempt status create a powerful long-term advantage, even at lower yields.

For aggressive income seekers willing to accept higher risk and volatility in exchange for superior current payouts and who belong in lower tax brackets, FBND presents an alternative. Its 4.7% yield compensates for its higher expense ratio and tax drag for those in moderate tax situations.

The broader lesson: municipal bonds ETF selection depends critically on your tax bracket, risk tolerance, and income objectives. Neither fund is universally superior—each serves different investor profiles within the municipal bonds ETF category.