Daily ETF Watch: A Cumberland Muni Fund

Cumberland Advisors, the Sarasota, Florida-based registered investment advisor known both as an early adopter of ETFs and as an expert in the realm of municipal bonds, has put its name and expertise behind a new actively managed muni bond ETF that went into registration this week.

The filing with the Securities and Exchange Commission, made under the exemptive relief of the white-label firm ETF Issuer Solutions, will focus on A-rated muni credits and will allow Cumberland, as subadvisor, to go where it wants on the muni yield curve.

The Cumberland Municipal Bond ETF, which will come with an annual expense ratio of 59 basis points, or $59 for each $10,000, is the latest example of a so-called ETF strategist taking matters into its own hands in terms of creating a self-branded ETF designed to meet client needs. Among ETF strategists that have their own ETFs are RiverFront Investment Group, Sage Advisory Services and Accuvest.

Cumberland, a staunch believer in the value of tax-advantaged muni credits as an approach to fixed income, has long assembled separately managed accounts of munis. But until now, it has largely avoided ETFs space when it comes to fixed income, though it has made use of more exotic fixed-income ETF instruments for hedging purposes. It seems possible that existing Cumberland clients could end up using the new muni ETF, as could investors in general.

Conversely, Cumberland has provided equity exposure to its clients with ETFs since before the dot-com crash. It now achieves all its equity exposure via ETFs.

Inside The Cumberland ETF

According to its prospectus, the fund will implement a barbell strategy, which involves tilting the portfolio more toward long and short maturities, while underweighting bonds with intermediate maturities.

At the same time, as noted, the fund has no target duration and is free to shift along the duration spectrum depending on interest rates and Cumberland’s view of the fixed-income space, the prospectus says.

It will target issues rated “A” or higher as a general rule. It can hold general obligation bonds, revenue bonds, discount bonds, premium bonds, zero coupon bonds and private activity bonds. The prospectus notes that at times it will have more than 25 percent of its portfolio concentrated in a particular sector, such as health care, education or housing.

Given that the main appeal of municipal bonds is their tax-free status, it’s no surprise that on any given day, 80 percent of the portfolio will be exempt from federal income taxes. However, the prospectus also says that the fund could have a sizable allocation to securities that are subject to the alternative minimum tax and it may invest in taxable municipal bonds or variable rate demand notes.