Daily ETF Watch: iShares Plans Muni Fund

The world’s largest ETF provider looks to launch an actively managed short-maturity municipal bond ETF.

Reviewed by: Heather Bell
Edited by: Heather Bell

The world’s largest ETF provider looks to launch an actively managed short-maturity municipal bond ETF.

iShares plans to enter a fairly well-covered municipal bond section of the fixed-income ETFs world with an actively managed fund. There are already seven funds targeting the short-term municipal bond space, including an index-based fund offered by iShares, but it looks like the firm isn’t shying from competing with itself.

The iShares Short Maturity Municipal Bond ETF will invest in short-term investment-grade municipal fixed-income securities that have less than five years left to their maturities, the prospectus said. It will target an effective duration of 1.2 years.

The powerhouse in the space is the SPDR Nuveen Barclays Short Term Municipal Bond ETF (SHM | B-69), which tracks a Barclays index and is not only investment-grade, but only holds issues rated AA- or higher. It has more than $2 billion in assets and comes with an expense ratio of 0.20 percent, or $20 for each $10,000 invested.

But the No. 2 player in the space is the iShares Short-Term National AMT-Free Muni Bond ETF (SUB | B-51), which is based on an index from S&P Dow Jones Indices. Like the newly proposed active fund, it targets investment-grade securities with less than five years to maturity.

ETF.com Analytics notes that it is overweight in the 0-1 year maturity bucket, which lowers its weighted average maturity and effective duration. SUB is approaching $900 million in assets under management, and it charges an annual expense ratio of 0.25 percent.

The only actively managed fund in the short-maturity muni space is the Pimco Short Term Municipal Bond Strategy Fund (SMMU | B-47). It has more than $75 million in assets under management, but launched a few years after both SUB and SHM. However, its year-to-date and three-year annualized performance trail both of those funds. It’s the most expensive fund in the space, charging 35 basis points.

The filing did not provide an expense ratio or ticker for the actively managed iShares fund, nor did it indicate which exchange the fund would list on.

Newcomer BioShares Files For 2 Funds
ETF Issuer Solutions (ETFis) recently put two funds into registration that target the biotechnology space.

The BioShares Biotechnology Products Fund (BBP) and the BioShares Biotechnology Clinical Trials Fund (BBC) already have tickers and both funds come with an expense ratio of 0.85 percent, according to the prospectus. They are slated to list on the Nasdaq Stock exchange.

Both will track indexes from LifeSci Index Partners LLC, which is also listed as the subadvisor for both funds.

While BBP will cover firms that focus on developing and marketing “novel drugs and therapeutics” that have received FDA approval, BBC will target firms that have major drugs and therapeutics that are still in the clinical trials stage of development. The prospectus noted that as of June 30, BBP’s index had 43 components and BBC’s index had 104 components.

For anyone who has followed the ETF industry for several years, the BioShares may call to mind the HealthShares family of funds.

Those ETFs basically sliced and diced the health care market into highly focused portfolios, covering everything from “emerging cancer” to “cardiology devices” to “neuroscience.” One of the investment arguments for the funds was that with the baby boomer population achieving senior citizen status, demand for all things health care related would be exploding.

Perhaps they were ahead of their time, or perhaps the individual funds were too narrow in their scope to appeal to investors; either way, they launched in 2007, but were off the market by 2008 after failing to gather significant assets.

The BioShares appear to take a broad approach rather than concentrating on specific illnesses or treatments, but dividing the pharmaceuticals industry between companies having approved drugs to market and companies still proving their treatments’ efficacy could be slicing the industry a little too thinly.


Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.