PowerShares, the Wheaton, Ill.-based firm best known for its Nasdaq-100 exchange-trade fund (NasdaqGM: QQQQ), filed papers with the Securities and Exchange Commission to add a second ETF focused on Build America Bonds, in the latest sign that investors are interested in this government-guaranteed and taxable piece of the municipal bond market.
The PowerShares Intermediate Build America Bond Portfolio (NYSEArca: BABI) will track the BofA Merrill Lynch 1-12 Year Build America Bond Index. The proposed new fund joins the PowerShares Build America Bond Portfolio (NYSEArca: BAB). “BAB” tracks the BofA Merrill Lynch Build America Bond Index.
The PowerShares ETF has gathered $340 million in assets since it was launched in November. The field of competitors is growing, most recently with a launch last month of State Street Global Advisors’ SPDR Nuveen Barclays Capital Build America Bond ETF (NYSEArca: BABS). Pimco, the world’s biggest bond fund manager, is also planning a Build America Bond ETF, the actively managed Pimco Build America Bond Strategy Fund.
Build America Bonds were launched in April 2009 as part of the Obama administration’s economic stimulus package. About 35 percent of interest payments are subsidized by the U.S. Treasury, making them attractive to cash-strapped municipalities and states. Build America Bonds are attractive to investors in part because, though they are taxable and their yields are comparable to those on corporate bonds, default rates on munis are lower than on corporates. More than 1,000 issues worth over $90 billion have been sold.
PowerShares’ and SSgA’s existing Build America Bond ETFs cost investors 0.35 percent a year in annual management fees. PowerShares didn’t say in its latest filing how much “BABI,” its latest planned offering in the space, would cost. Pimco also didn’t say how much its actively management Build America Bond ETF would cost.