At a time of heightened concerns regarding bond liquidity, RVNU ensures liquidity by tilting more than 75% of the fund’s lineup to issues with $100 million or more outstanding.
Another obvious concern is rising interest rates and how higher rates will affect longer duration bond funds. RVNU’s index has a modified duration of 6.53 years. That longer duration has been something of a hurdle for RVNU, but one the ETF can easily overcome.
“Our focus is on finding the most attractive part of the yield curve,” adds Ridley. “RVNU finds bonds with 10-year calls because those have the same sensitivity as bonds with 10-year maturities.”
Since coming to market, RVNU has taken its lumps. The ETF debuted in the midst of the 2013 taper tantrum and the Detroit bankruptcy, but at a time when some of the largest U.S. states, including California and Illinois, are awash in massively under-funded public employee pension obligations, some investors are looking to diversify away from GO bonds while still keeping exposure to munis. [Advisors Like the new Spin on Muni Bond ETFs]
“Clients are asking about GOs and pensions,” said Goodfield. “There are some municipalities that aren’t managing these issues well. While true, we think it’s important to say many general obligation issuers are managing these issues well Some investors have a negative outlook and want to be solely in revenue bonds.”
As Goodfield notes, awareness of public pension issues is on the rise. That could prove to be good for RVNU over the long-term.
Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund
Tom Lydon’s clients own shares of RVNU.