Barclays Global Investors (BGI) captured the roses, launching its iShares S&P National Municipal Bond Fund (MUB) on September 10. But as BGI was celebrating, State Street Global Advisors (SSgA) crashed the party by announcing its own muni bond ETF launch, just three days later. Worse, SSgA undercut BGI on price, charging just 0.20 percent in annual expenses for its SPDR Lehman Municipal Bond ETF (TFI) compared with 0.25 percent for MUB.

PowerShares—which now offers over 100 ETFs—joined the fun in October, launching a family of muni bond ETFs including the PowerShares Insured National Municipal Bond ETF (PZA). PZA charges 0.28 percent in expenses.

PowerShares, SSgA and BGI also offer New York- and California-specific muni bond funds, while SSgA also offers a short-term muni bond fund covering the national market.

Van Eck Global also has five muni bond ETFs in registration at the Securities and Exchange Commission (SEC).

Investors may be overwhelmed by the array of choices, but there are important differences between the funds. Among the national funds, the PowerShares offering gives you the highest credit quality (AAA) but the lowest average coupon (4.80 percent at press time). The SSgA fund has the second-highest credit quality (AA1) and a higher average coupon (4.96 percent at press time). BGI also has an average credit score of AA1 (albeit at a slightly lower mix than SSgA’s fund), but had the highest average coupon at press time (4.99 percent).

Importantly, the three funds also have very different underlying structures and investment processes, which could have a major impact on performance down the road. The municipal bond market is notoriously illiquid, and is plagued by high spreads and low trading volumes. Many investors are taking a “wait and see” attitude and watching how these funds perform for the first few months before investing.