California Muni ETFs for a Potential Rating Upgrade

ETF Trends

Standard & Poor’s ratings agency is contemplating an upgrade on California as the state gradually pays down debt, revenue picks up and spending is tempered. Municipal bond investors can gain targeted exposure to California debt through exchange traded funds.

The S&P upgraded California, the country’s most indebted state, to “A” in January on improvements in California’s fiscal health, and the firm believes the state is making great strides, Bloomberg reports.

“What we are keeping a close eye on is the state’s revenue performance relative to the budget assumptions,” Standard & Poor’s analyst Gabriel Petek said in the article. “What we are looking for in the governor’s upcoming proposed budget is for them to continue to work off this so-called wall of debt. If these two things continue to proceed as the governor has set forth, we think there is potential for another rating upgrade.”

The spread on California’s 10-year bonds was hovering around 0.34% Tuesday, the lowest since November 2007. [Muni ETFs Look More Attractive As An Income Play]

There are a couple of California-specific muni bond ETFs available:

  • iShares California AMT-Free Muni Bond ETF (CMF) : down 1.6% year-to-date; $231.3 million in assets; 0.25% expense ratio; 2.69% 30-day SEC yield
  • SPDR Nuveen Barclays California Municipal Bond ETF (CXA) : down 2.9% year-to-date; $83.2 million in assets; 0.20% expense ratio; 2.74% 30-day SEC yield
  • PowerShares Insured California Municipal Bond Portfolio (PWZ) : down 4.5% year-to-date; $61.0 million in assets; 0.28% expense ratio; 4.13% 30-day SEC yield

Additionally, broad muni bond ETFs, like the iShares National AMT-Free Muni Bond ETF (MUB) , also have a hefty allocation toward California. California makes up 22.1% of MUB. [Advisors Like the New Spin on Muni Bond ETFs]

For more information on munis, visit our municipal bonds category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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