Seeking the Best Fixed Income ETF? How FBND and MUB Stack Up

When building a best fixed income portfolio, investors often face a critical choice between different bond ETF strategies. The Fidelity Total Bond ETF (FBND) and the iShares National Muni Bond ETF (MUB) represent two fundamentally different approaches to income investing, each with distinct advantages depending on your tax situation and risk tolerance.

MUB has dominated the municipal bond space since its launch, managing $41.85 billion in assets with over 6,100 holdings. Meanwhile, FBND, introduced in 2014, manages $23.91 billion across 4,459 diversified bond holdings. While both appeal to income-seeking investors, they attract different investor profiles—and the best fixed income choice depends entirely on your circumstances.

Which ETF Delivers Better Income Returns

At first glance, FBND appears to offer superior income potential. The fund boasts a 4.7% dividend yield compared to MUB’s 3.13%, and its 1-year return stands at 2.6% versus MUB’s 1.22% (as of January 2026). However, this income advantage comes with a significant cost difference: FBND charges a 0.36% expense ratio, roughly seven times higher than MUB’s razor-thin 0.05% fee structure.

The income gap widens when you account for fund composition. FBND tilts heavily toward corporate and energy sector bonds, allowing it to hold up to 20% of assets in BBB-rated debt—lower-quality securities that offer higher yields but carry elevated default risk. In contrast, MUB maintains a stricter quality threshold, with 61% of holdings in AA-rated municipal bonds and the remainder split between AAA and A-rated securities, creating a more conservative income stream.

The Tax Advantage Question: Municipal vs. Corporate Bonds

This is where the investment decision often pivots. MUB’s primary selling point isn’t raw yield—it’s tax efficiency. Municipal bonds provide federal tax-exempt income, and depending on your state of residence, state income tax exemptions as well. For investors in high tax brackets, this tax shield can dramatically increase the effective return on investment.

FBND offers no such tax advantages. Its corporate and government bond holdings produce fully taxable income, making it less attractive for high-net-worth individuals seeking to minimize tax liability. However, FBND compensates with higher nominal yields, which can benefit tax-deferred accounts like IRAs where tax efficiency is irrelevant.

Risk Profiles and Fund Composition Explained

Performance history reveals important differences in downside protection. Over the past five years, FBND experienced a maximum drawdown of -17.23%, while MUB’s worst decline was -11.88%. This divergence reflects FBND’s greater exposure to corporate credit risk and market volatility. A $1,000 investment in FBND five years ago would have grown to $862, while the same investment in MUB would now be worth $922—a meaningful difference driven by both yield and capital appreciation.

FBND’s composition explains this volatility. With 67% of holdings rated AAA (the highest quality), the fund still allocates 20% to riskier debt securities. This creates a “barbell” strategy designed to boost returns through corporate credit exposure while maintaining a foundation of high-quality bonds. MUB takes a more homogeneous approach, concentrating its 6,163 holdings almost entirely within investment-grade municipal securities with zero direct U.S. government bond exposure.

Making Your Best Fixed Income Choice

The bond market has recovered slowly and gradually from its 2022 crash, suggesting that significant price appreciation will only materialize if federal interest rates drop dramatically—an event that would send previously locked-in higher-rate bonds soaring in value. Until then, these ETFs will primarily deliver income rather than capital gains.

For investors prioritizing tax efficiency and stable, tax-free income, MUB stands as the optimal choice. Its lower expense ratio of 0.05% means less drag on returns, and its tax-exempt income structure provides a substantial advantage for higher-income taxpayers seeking the best fixed income strategy within taxable accounts.

For investors in tax-deferred retirement accounts or those seeking higher nominal yields willing to accept corporate credit risk, FBND offers a compelling alternative. Its superior dividend yield and greater focus on corporate debt create better total return potential, despite the higher expense ratio eating into gains.

The best fixed income decision ultimately hinges on three factors: your tax bracket, your account type (taxable versus tax-deferred), and your tolerance for corporate credit risk. MUB suits conservative investors and high-tax-bracket earners seeking municipal exposure, while FBND appeals to growth-oriented investors comfortable with additional volatility for the prospect of higher income.