Regarding the new muni ETF RVNU, other existing bond ETFs have combined holdings of revenue bonds and general obligation (GO) bonds, the latter being issued by city, county and state governments. Revenue bonds derive their stream of income through revenues of a given project the bond issue financed, such as a toll road or water system.
Revenue bonds are generally considered a bit more risky than GO bonds in that cities can rejigger budgets to support bond payments, but a project financed by a revenue bond that isn’t generating enough income to support bond payments is truly in a pickle. But coupons on such bonds can be higher as a result of the perception of risk; hence their allure.
RVNU will focus on U.S. long-term tax-exempt infrastructure-related revenue bonds.
The ETF, which also tracks a DBIQ index, is designed to provide exposure to bonds that were issued for the purpose of funding federal, state and local infrastructure projects like water and sewer systems, or toll roads and bridges, to name a few.
RVNU will focus on bonds for which generated income is wholly contingent on the municipal project they finance. As of March 31, the index underlying the strategy comprised some 517 securities with an average amount outstanding of $125 million.
All bonds must meet size requirements, be investment-grade and have a fixed-rate coupon, according to the prospectus.
Deutsche Bank currently has 10 ETFs under its db-X brand—five target-date funds and five country- or region-focused currency-hedged strategies. It currently manages about $313 million. The firm is also behind a vast roster of PowerShares-distributed strategies.