It’s actually pretty cool. The new funds, which launched in January, fall under a new family of iShares ETFs called the Muni Series. Basically, these funds are structured to track an index of AMT-free, investment grade and non-callable municipal bonds. What sets these funds apart is that they all have an end-date, upon which the fund will distribute substantially all of its net assets. [5 ETFs Offering Inflation Protection.]
The iShares Muni Series trade on an exchange just like other ETFs and generate monthly income on top of an end-date distribution. Although the yield to maturity is comparable to a portfolio of municipal bonds of similar maturity and credit quality, the monthly and final payouts are not always predictable. But in order to preserve the YTM, the fund dynamically adjusts its end-date distribution in line with its monthly payouts. So as monthly payouts fall, the end-date distribution will rise to compensate and vice-versa. [The Case for Emerging Market Bond ETFs.]
The main factor influencing monthly yields is that as investors enter the fund, it will purchase new bonds that may have different yields and prices, thereby affecting the overall profile of the fund.