Assessing the Value of Municipal Bond ETFs in a Volatile Market: SCMB vs. MUST

In the shadow of persistent macroeconomic uncertainty, investors are increasingly turning to municipal bonds for their dual promise of tax-exempt income and relative stability. Yet, as volatility persists, the choice between competing ETFs like Schwab Municipal Bond ETF (SCMB) and Columbia Multi-Sector Municipal Income ETF (MUST) demands careful scrutiny. This analysis examines their value propositions, performance, and risk profiles in the context of 2025's shifting market dynamics.

The Cost of Stability: SCMB's Low-Expense Edge

SCMB, with an expense ratio of 0.03%, stands as one of the most cost-efficient municipal bond ETFs. This starkly contrasts with MUST's 0.23% fee, a difference that compounds meaningfully over time. For investors prioritizing long-term capital preservation, SCMB's fee structure is a compelling advantage. However, cost alone is not the sole determinant of value.

SCMB's focus on the ICE AMT-Free Core U.S. National Municipal Index ensures exposure to high-quality, AMT-exempt bonds, typically with intermediate durations. This design limits credit risk and aligns with conservative income strategies. By contrast, MUST's broader Bloomberg Beta Advantage Multi-Sector Municipal Bond Index includes a diversified mix of sectors, maturities, and credit qualities, which may appeal to those seeking yield at the expense of higher risk.

Yield and Volatility: A Trade-Off in Turbulent Times

While SCMB's yield appears marginally higher, its volatility is significantly lower. As of August 2025, SCMB's annualized volatility stands at 0.80%, compared to MUST's 1.42%. This disparity reflects SCMB's narrower, high-quality focus versus MUST's multi-sector diversification, which introduces exposure to lower-rated bonds and longer durations.

Historical performance during crises—such as the 2020 pandemic and the 2008 financial collapse—further underscores this divide. Municipal bonds, including SCMB's holdings, demonstrated resilience in 2020, retaining value despite liquidity crunches. MUST's broader exposure, however, likely amplified its sensitivity to sector-specific downturns.

Risk-Adjusted Returns: The Hidden Metric

Beyond raw performance, risk-adjusted metrics reveal critical insights. SCMB's Sharpe Ratio of -0.06 lags behind MUST's 0.06, suggesting subpar returns relative to its risk. Yet, the Sortino Ratio—focusing on downside risk—favors SCMB at 0.09 versus MUST's 0.22. This highlights SCMB's superior ability to mitigate losses during downturns, a trait particularly valuable in today's unpredictable climate.

Strategic Implications for 2025

The municipal bond market in 2025 remains attractive, with yields on the Bloomberg Municipal Bond Index reaching 4.29% (7.24% taxable-equivalent) in April 2025. However, rising policy uncertainty—such as debates over Medicaid funding and muni tax exemptions—threatens to spur volatility.

For investors in higher tax brackets, SCMB's low fees and AMT-free structure offer a compelling tax-efficient strategy. Its focus on investment-grade bonds aligns with the current environment, where credit quality is paramount. Conversely, MUST's multi-sector approach may appeal to those seeking to capitalize on niche opportunities, such as housing sector muni bonds, which remain high-conviction ideas due to their AAA ratings and government guarantees.

Conclusion: Balancing Cost, Yield, and Risk

SCMB and MUST represent distinct philosophies in municipal bond investing. SCMB excels as a low-cost, low-volatility option for conservative investors prioritizing stability and tax efficiency. MUST, with its broader exposure, offers higher yield potential but at the cost of increased risk and volatility.

In 2025, as macroeconomic headwinds persist, the choice between these ETFs hinges on individual risk tolerance and income needs. For those seeking a fortress of stability, SCMB remains a standout. For those willing to accept added risk for diversification and yield, MUST provides a viable alternative. Ultimately, a balanced portfolio might include both, leveraging their low correlation (0.14) to hedge against sector-specific shocks.

In a world where uncertainty is the only certainty, the municipal bond market offers a refuge—and SCMB and MUST provide two distinct paths to navigate it.