Smart Beta Muni Bond ETF Debuts

Columbia Threadneedle rolled out an ETF covering municipal bonds, with a smart-beta twist.
Reviewed by: Staff
Edited by: Staff

Today Columbia Threadneedle introduced an ETF that considers sectors of the municipal bond market. The Columbia Multi-Sector Municipal Income ETF (MUST) covers debt issued by state and local governments with some very specific exclusions that include California bonds and debt issued by U.S. territories, according to the prospectus.

MUST comes with an expense ratio of 0.28% and lists on the NYSE Arca.

The index uses the Bloomberg Barclays Municipal Bond Index as its selection universe and has fixed allocations to the following five sectors: municipal core revenue (45%); municipal health care (20%); municipal high quality revenue (15%); municipal core general obligations (10%); and municipal high yield (10%). Each sector has different parameters regarding the eligibility of different securities in terms of credit quality, maturity and size, the document says.

The methodology is designed to focus on characteristics such as yield, quality, maturity, liquidity and interest rate sensitivity of the different sectors. As of the end of June, the index included 5,643 securities, but the portfolio is constructed using representative sampling and is expected to hold only about 120 bonds, the prospectus notes.

The largest muni bond ETF currently trading is the plain-vanilla iShares National Muni Bond ETF (MUB), which has $9.5 billion in assets under management and comes with an expense ratio of just 0.07%. However, there is a baker’s dozen of actively managed muni ETFs, with the cheapest being the iShares Short Maturity Municipal Bond ETF (MEAR), which charges 0.25% and has a little less than $95 million in assets.

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