Everyone's Filing For Muni Bond ETFs: Whose Will Be Best?

by: IndexUniverse

All of a sudden, everyone wants to launch a municipal bond exchange-traded fund [ETF].

Earlier this year, you could hardly get anyone interested in fixed-income ETFs, let alone muni bonds. But at least four major ETF providers submitted applications to the Securities and Exchange Commission [SEC] in July for municipal bond ETFs, as the great bond ETF land grab continues.

Barclays Global Investors

Barclays Global Investors [BGI] was the first to file with the SEC, on July 3, and currently has three muni bond ETFs in registration. The first fund to hit registration was the iShares S&P National Municipal Bond Index, designed to track a comprehensive index of state and local municipal bonds with an investment grade rating of BBB- or better from at least one of the three major bond rating agencies.

BGI followed up with additional filings for state-specific funds in two of the largest state markets, New York and California. Again, the indexes holds only liquid issues with ratings of BBB- or better.

There is no word yet on tickers, listing sites or expense ratios for the funds.

The prospectus for the national fund is available here.

The prospectus for the state funds is available here.

State Street Global Advisors

Not to be outdone, State Street Global Advisors (SSgA) also filed for four municipal bond ETFs. The first filing, which hit the SEC ten days after BGI's first filing, on July 13, is a national fund tied to the Lehman Brothers Municipal Managed Money Index. 

The Lehman index is significantly different from the S&P index. While the S&P index holds securities with ratings of BBB- or better, the Lehman index focuses on securities with ratings of Aa3/AA- or higher. In addition, these securities must have this rating from two of the three major bond rating services (Moody's, S&P and Fitch).

The question is whether this higher quality leads to a lower yield; of course, in the current credit environment, investors may be drawn to the higher quality index regardless.

The prospectus is available here.

SSgA later added three additional funds:

  • The SPDR Lehman California Municipal Bond ETF
  • The SPDR Lehman New York Municipal Bond ETF
  • The SPDR Lehman Short Term Municipal Bond ETF

Again, the indexes focus only on highly rated securities with an Aa3/AA- rating from two of the three major ratings agencies.

The prospectus is available here.

Van Eck

Van Eck has been quietly building itself a nice little ETF franchise, and it has jumped into the municipal bond market with two feet. The group has filed for the most complete municipal bond ETF family offering on record, with six new ETFs on file as of July 20.

Market Vectors-Lehman Brothers 1-5 Year Municipal ETF

  • Market Vectors-Lehman Brothers Intermediate Municipal ETF
  • Market Vectors-Lehman Brothers Long Municipal ETF
  • Market Vectors-Lehman Brothers High Yield Municipal ETF
  • Market Vectors-Lehman Brothers California Municipal ETF
  • Market Vectors-Lehman Brothers New York Municipal ETF

The 1-5 Year, Intermediate, Long, California and New York funds will hold securities with ratings of Aa3/AA- or better. The High-Yield fund will hold securities ranked Baa3 or lower. The Intermediate ETF holds notes with 1-17 years until maturity while the Long ETF holds notes with 10+ years to maturity.

The prospectus is available here.

PowerShares

PowerShares is always eager to offer a complete family of ETFs, and they've been quick to jump on the muni bond ETF bandwagon as well. On July 25, PowerShares filed for two municipal bond ETFs.

  • PowerShares Insured National Municipal Bond Portfolio
  • PowerShares National Municipal Bond Portfolio

Of all the funds in registration, the "Insured" fund offers the most secure return. It tracks the Merrill Lynch US Insured Core Municipal Securities Index, which holds insured securities with a rating of AAA (based on an average of all three rating agencies). An "insured" bond is one that has an insurance policy designed to pay interest and principal in the event of default.

The second ETF tracks the Merrill Lynch US Core Municipal Series Index, which holds debt rated BBB- or better by S&P (or Baa from Moody's).That's in-line with the ratings on BGI's S&P fund.

These funds have the longest time-to-maturity requirements of any in registration.

There is no word yet on expenses and fees.

The prospectus is available here.Who Will Win?

In the ETF industry, there's been a tendency for the first company to market to have a large advantage in terms of gathering assets. In this case, however, with so many funds likely to come to market at the same time, it will likely come down to sales and marketing to determine which gathers the lion's share.

Right now, you can see advantages to each provider. BGI, for instance, has the largest reach and the most established ETF business. SSgA's funds, however, have slightly better credit, which may be appealing in the current market. Meanwhile, Van Eck has put together the most complete muni bond line-up in registration, while PowerShares has a unique offering in its insured ETF.

Perhaps the key will come down to expenses: with all of these companies operating in the same space, investors should look closely to see which companies offer the lowest expense ratios.

Time will tell.  

Muni Bond ETFs In Registration

FUND

DURATION

RATING

DATE FILED

Barclays Global Investors

iShares S&P National Municipal Bond Index

>1 month

BBB-/Baa3

By One Agency

July 3, 2007

iShares S&P California Municipal Bond Index

>1 month

BBB-/Baa3

By One Agency

August 7, 2007

iShares S&P New York Municipal Bond Index

>1 month

BBB-/Baa3

By One Agency

August 7, 2007

State Street Global Advisors

SPDR Lehman Municipal Bond ETF

>1 year

AA-/Aa3

By Two Agencies

July 13, 2007

SPDR Lehman Short Term Bond ETF

>1 year, <5 years

AA-/Aa3

By Two Agencies

August 10, 2007

SPDR Lehman California Bond ETF

>1 year

AA-/Aa3

By Two Agencies

August 10, 2007

SPDR Lehman New York Bond ETF

>1 year

AA-/Aa3

By Two Agencies

August 10, 2007

Van Eck Global

Market Vectors-Lehman Brothers 1-5 Year Municipal ETF

>1 year, <5 years

AA-/Aa3

By Two Agencies

July 20, 2007

Market Vectors-Lehman Brothers Intermediate Municipal ETF

>1 year, <17 years

AA-/Aa3

By Two Agencies

July 20, 2007

Market Vectors-Lehman Brothers Long Municipal ETF

> 10 years

AA-/Aa3

By Two Agencies

July 20, 2007

Market Vectors-Lehman Brothers High Yield Municipal ETF

Open

BBB-/Baa3 or worse

By One Agency

July 20, 2007

Market Vectors-Lehman Brothers California Municipal ETF

> 1 year

AA-/Aa3

By Two Agencies

July 20, 2007

Market Vectors-Lehman Brothers New York Municipal ETF

>1 year

AA-/Aa3

By Two Agencies

July 20, 2007

PowerShares

PowerShares Insured National Municipal Bond Portfolio

>20 years

AAA or better

By All Three Agencies

July 25, 2007

PowerShares National Municipal Bond Portfolio

> 20 years

BBB-/Baa3 or better

By Two Agencies

July 25, 2007

 

About this article:

Expand
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here