iShares launches first-ever muni bond ETF with fixed end date

iShares today launched a suite of municipal bond exchange-traded funds with a planned end date. The feature allows investors to obtain targeted exposure to the municipal yield curve. Many municipal bond buyers prefer investing in individual muni bonds because the strategy allows them to lock in a specific yield, said Matt Tucker, managing director of U.S. fixed-income strategy at iShares' parent company, BlackRock Inc. “Those investors have typically not looked to funds as a muni solution,” he said. That's because the yield of such products can fluctuate as they are required to buy, for example, ten-year muni bonds at different prices over time. The new iShares muni ETFs, however, operate much the same as a single muni bond, Mr. Tucker said. Of course, buying iShares' new muni bond ETFs isn't exactly like buying an individual municipal bond. Unlike a direct investment in municipal bonds, the breakdown of cash flows between funds' monthly distributions and returns at maturity will be variable, rather than fixed at the time of investment. That drawback, however, is offset by the targeted yield. In addition, the iShares ETFs enable muni bond investors to hedge their bets. “It can be very expensive to buy small lots of municipal securities,” Mr. Tucker said. “But that's what you want to do to protect against any one bond running into trouble.” The new funds come with an expense ratios of 0.30%. They currently include the iShares 2012 S&P AMT-Free Municipal Series (MUAA), iShares 2013 S&P AMT-Free Municipal Series (MUAB), iShares 2014 S&P AMT-Free Municipal Series (MUAC), iShares 2015 S&P AMT-Free Municipal Series (MUAD), iShares 2016 S&P AMT-Free Municipal Series (MUAE) and iShares 2017 S&P AMT-Free Municipal Series (MUAF). Other muni ETFs are planned, Mr. Tucker said.