ETF Watch: PowerShares Fund Shifting Focus

A new filing from PowerShares outlines the firm’s plan to transform the PowerShares Build America Bond Portfolio (BAB), a nearly $960 million ETF, into the PowerShares Taxable Municipal Bond Portfolio trading under the same ticker. The new index is broader in focus, expanding the range of taxable municipal bonds the fund will cover.

BAB was launched in 2009 and covers the taxable investment-grade municipal debt publicly issued under the Build America Bond program. The program was part of the post-crisis American Recovery and Reinvestment Act; it expired at the end of 2010.

The switch is likely due to the fact that with the original legislation expired and no new updates to it, there will be no new Build America bonds, meaning the investment universe will continue to shrink as the bonds mature. The only other fund covering the space, the SPDR Nuveen Barclays Build America Bond ETF (BABS), shut down in August 2016.

New Methodology

The revamped BAB will track the capitalization-weighted BofA Merrill Lynch US Taxable Municipal Securities Plus Index, which can include Build America bonds. The index requires components have at least 18 months to maturity when issued and at least a year remaining to maturity.

Bonds with maturities of one to five years at issuance must have at least $10 million outstanding, while those with five to 10 years of maturity at issuance must have $15 million outstanding. Bonds with maturities of 10 years or greater at issuance must have at least $15 million outstanding, the prospectus said.

The fund will keep its expense ratio of 0.28% and continue to be listed on the NYSE Arca. Although the filing did not give a specific date, it did note the transition would take place in May of this year.

Contact Heather Bell at [email protected].