Daily ETF Watch: Vanguard Debuts Muni Fund

August 25, 2015

It may come as a surprise to many, but index fund behemoth Vanguard did not have a passively managed municipal bond fund on offer until today. Previously, all its municipal bond funds were actively managed, but that all changed with the launch of the Vanguard Tax-Exempt Bond Index Fund, which includes ETF shares trading under the ticker VTEB.

VTEB tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, the same benchmark used by the iShares National AMT-Free Muni Bond ETF (MUB | B-82), which, at more than $5 billion in assets under management, is by far the largest municipal bond ETF trading. However, VTEB comes with an expense ratio of 0.12 percent, less than half the 0.25 percent charged by MUB.

O’Shares Adds Hedged ETFs
Just last week, the O’Shares ETFs co-founded by Shark Tank star Kevin O’Leary rolled out two “quality dividend” ETFs targeting Asia and Europe, the O’Shares FTSE Asia Pacific Quality Dividend ETF (OASI) and the O'Shares FTSE Europe Quality Dividend ETF (OEUR). Today the firm launched hedged versions of those funds, the O’Shares FTSE Asia Pacific Quality Dividend Hedged ETF (OAPH) and the O’Shares FTSE Europe Quality Dividend Hedged ETF (OEUH).

The unhedged ETFs both come with expense ratios of 0.58 percent, while the currency hedge costs investors an extra 10 basis points, with OAPH and OEUH both charging 0.68 percent.

Elkhorn Plans Next Move

Elkhorn Investments, which was founded by former Invesco PowerShares head Ben Fulton, has filed for a follow-up fund to the Elkhorn S&P 500 Capital Expenditures Portfolio (CAPX) that it launched in May. The Elkhorn S&P U.S. Preferred Aristocrats Portfolio will target high-quality preferred stocks via a benchmark derived from the S&P U.S. Fixed Rate Preferred Stock Index.

The preferred stocks included in the fund’s index must pay a fixed-rate dividend throughout their entire term, according to the prospectus. The index components must also have a minimum market capitalization of $100 million, trade on a public exchange, clearly announce an indicated dividend yield and qualify as investment grade, in addition to meeting liquidity requirements.

There are at least nine funds targeting the preferred securities space; the most successful by far is the iShares U.S. Preferred Stock ETF (PFF | B), which has $13.5 billion in assets under management. However, Fulton’s old firm PowerShares has several billion dollars invested in its three preferred-stock ETFs, including $334 million in the PowerShares Variable Rate Preferred Portfolio (VRP | C).

In any case, by targeting fixed-rate preferred securities, Elkhorn will be targeting a niche that has been overlooked by other issuers.

The filing did not include a ticker or expense ratio.


Contact Heather Bell at [email protected].

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