Today, Avantis rolled out an ETF targeting the municipal bond space. The Avantis Core Municipal Fixed Income ETF (AVMU) is actively managed using a quantitative approach.
AVMU charges an expense ratio of 0.15% and lists on the NYSE Arca.
The fund managers look at expected income and capital appreciation in order to select bonds that will outperform. The process starts with sorting eligible components into groups based on a wide variety of criteria, including industry sector, credit rating, duration, country and currency, according to the fund documentation.
From there, the managers use the implied yield curves of the different groups to calculate their respective expected returns before assigning weights to the individual groups with the goal of improving performance, the prospectus says.
The fund may use derivatives in its portfolio, and generally targets a weighted average duration that is within two years of that of its benchmark. The S&P National AMT-Free Municipal Bond Index tracks the largest and most liquid investment-grade municipal bonds and has more than 12,500 components. It underlies two of the biggest municipal bond ETFs available to investors, the $20 billion iShares National Muni Bond ETF (MUB) and the $10 billion Vanguard Tax-Exempt Bond ETF (VTEB).
Interestingly, despite its complex active methodology, AVMU has an expense ratio that is 10 basis points cheaper than the 0.25% charged by MUB. VTEB’s expense ratio is just 0.06%.
Avantis is a unit of American Century and is led by Eduardo Repetto, a former co-CEO of Dimensional Fund Advisors.
Contact Heather Bell at [email protected]