Recent filings with the Securities and Exchange Commission indicate that Barclays Global Investors (soon to come under ownership by BlackRock (NYSE:BLK)) is looking to launch a family of municipal bond exchange-traded funds targeting certain maturity dates.
Each fund would hold the underlying securities from its respective index to full maturity, at which point the fund would simply retain a cash position. When the last holding of each fund reaches maturity, presumably on or about Aug. 31 of the targeted year, the fund’s assets will be distributed to shareholders, much like the underlying bonds themselves.
The funds would track indexes in the recently launched S&P AMT-Free Municipal Bond Index Series. The indexes target investment-grade muni bonds that mature between June 1 and Aug. 31 of a specific year. Eight individual indexes cover the years 2012 through 2019, though the fund filings so far only cover 2012 to 2017. For example, the iShares 2012 S&P AMT-Free Municipal Series ETF would track the S&P AMT-Free Municipal Series 2012 Index.
While exchange-traded notes come with maturity dates, and the MacroShares products also have set distribution dates, these are the first ETFs to target securities whose maturities fall within a specific date range. Essentially, they will act almost like muni bonds themselves, given that they will make tax-exempt distributions and return an investor’s entire investment on a specific date. However, any risk would be spread out over an entire portfolio of bonds, likely adding further appeal for investors who like munis’ lower-risk profile.
The funds could be particularly useful for people looking to implement fixed-income laddering strategies or park their cash in a relatively low-risk investment for a set period of time. Certainly, they seem like they could be useful tools for investors using highly customized strategies. It will be interesting to see what kinds of assets they attract and if more funds with later target maturities follow.
The proposed family includes the following (click on the fund to view the prospectus):
- iShares 2012 S&P AMT-Free Municipal Series
- iShares 2013 S&P AMT-Free Municipal Series
- iShares 2014 S&P AMT-Free Municipal Series
- iShares 2015 S&P AMT-Free Municipal Series
- iShares 2016 S&P AMT-Free Municipal Series
- iShares 2017 S&P AMT-Free Municipal Series
The projected fees were not disclosed in the filing.