iShares Plans 2 More Target-Date Muni ETFs

Alex Ulam and Olivier Ludwig
October 10, 2011

BlackRock’s iShares, the world’s-largest ETF firm, filed paperwork with the Securities and Exchange Commission to add two new target-date municipal bond funds to its existing family of six funds, with maturities ranging from 2012 to 2017 and total assets of $149.8 million.

The two new ETFs, the iShares 2018 S'P AMT-Free Municipal Series and iShares 2019 S'P AMT-Free Series , create new laddering possibilities for holders of the company’s existing muni bond ETFs who want to be able to retain exposure to the muni market.

Although municipal bond funds have long been considered a safe investment, the $2.8 billion municipal bond market has been volatile in the past few years, as cities have struggled to make ends meet in the wake of the financial crisis of 2008-2009.

Late last year, for example, the market sold off sharply after analyst Meredith Whitney warned of the possibility of widespread defaults. They haven’t yet materialized, but munis were again under selling pressure last summer amid all the uncertainty that culminated with S'P’s downgrade of U.S. government debt.

But investors, especially those with short-term goals, have a growing appetite for target-date maturity muni bond funds.

These ETFs are the bond-fund equivalent to owning individual credits. Investors can hold them to maturity, while reaping the benefits of owning a diversified portfolio. That means they are able to minimize their exposure to the still-rare event of a municipality defaulting.

San Francisco-based iShares began offering its target-date funds in 2010. They have slowly and steadily built assets.

The iShares 2016 S'P 2016 S'P AMT-Free Municipal Series (NYSEArca:MUAE - News) is a good example of the popularity of target-date maturity bond funds.

MUAE had a weighted average coupon of 4.96 percent, but the 30-day SEC yield for the ETF is 1.02 percent, meaning that enough investors were attracted to that average coupon to pile into MUAE and drive its price up and its yield down.

An official at iShares said MUAE is trading at a level that’s roughly equivalent to a blended price of 115, a hefty 15 percent premium to par.

The existing iShares target-date muni bond ETFs and their current assets are:

  • iShares 2012 S'P AMT-Free Municipal Series (NYSEArca:MUAA - News), $33 million
  • iShares 2013 S'P AMT-Free Municipal Series (NYSEArca:MUAB - News), $35.6 million
  • iShares 2014 S'P AMT-Free Municipal Series (NYSEArca:MUAC - News), $30.8 million
  • iShares 2015 S'P AMT-Free Municipal Series (NYSEArca:MUAD - News), $28.8 million
  • iShares 2016 S'P AMT-Free Municipal Series (NYSEArca:MUAE - News), $23.4 million
  • iShares 2017 S'P AMT-Free Municipal Series (NYSEArca:MUAF - News), $31.8 million

 

The paperwork iShares filed with the SEC didn’t say what the prices or the trading symbols of the two bond ETFs maturing in 2018 and 2019 would be.

iShares’ existing muni bond ETFs maturing from 2012 to 2017 all have annual expense ratios of 0.30 percent.

 

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