Fixed-income investors who like a more hands on approach in managing their bond investments can take a look at two new iShares municipal bond exchange traded funds that could fit well in a laddered portfolio strategy.
BlackRock’s iShares recently launched the iBonds Dec 2021 AMT-Free Muni Bond ETF (NYSEArca: IBMJ) and the iBonds Dec 2022 AMT-Free Muni Bond ETF (NYSEArca: IBMK) on the heels of the closure of the iBonds Sep 2015 AMT-Free Muni Bond ETF (NYSEArca: IBMD).
According to iShares, IBMD closed on September 1 in accordance with its prospectus and investment objective. Investors will receive the entire amount of their proceeds in cash on or after September 8.
These defined-maturity bond funds typically buy bonds that mature in the year the ETF will terminate, ensuring that investors can collect the bonds’ face value at maturity, along with a steady income stream along the way. As such, investors are meant to buy-and-hold these securities until maturity. In contrast, a regular bond ETF runs the risk of losing its original principal if interest rates go up, depending on the bond ETF’s effective duration, since the bond funds would buy and sell debt securities to maintain their target strategy.
Using target-date bond funds, an investor could create a bond ladder strategy to create a portfolio with varying maturity dates. The bonds’ maturity dates are evenly spaced across several years so that the proceeds from maturing bonds may be reinvested at regular intervals, so those investors who held IBMD upon maturity can turn around and reinvest the money back into IBMJ if they already hold position in the other target-date muni bond ETFs.
The iShares iBond suite also includes the iBonds Sep 2016 AMT-Free Muni Bond ETF (NYSEArca: IBME), iBonds Sep 2017 AMT-Free Muni Bond ETF (NYSEArca: IBMF), iBonds Sep 2018 AMT-Free Muni Bond ETF (NYSEArca: IBMG), iBonds Sep 2019 AMT-Free Muni Bond ETF (NYSEArca: IBMH) and iBonds Sep 2020 AMT-Free Muni Bond ETF (NYSEArca: IBMI).
As the two new ETFs’ names suggest, IBMJ holds onto investment-grade municipal bonds that mature by December 2021 while IBMK includes munis that mature by December 2022. Both ETFs have an expense ratio of 0.18%.
IBMJ’s top state holdings include New York 15.3%, Florida 10.6%, Washington 10.0%, Texas 7.9%, Virginia 5%, Maryland 4.7%, Ohio 4.5%, California 4.3%, Arkansas 4.1% and Massachusetts 3.4%. Sectors include state-taxed back 35.3%, transportation 17.2%, local tax-backed 15.4%, utilities 12.1%, education 11.1% and school districts 7.9%.
IBMK’s top states include California 14.5%, Texas 11.6%, New York 10.8%, Washington 9.5%, Florida 9.2%, Ohio 7.5%, Wisconsin 6.1%, Massachusetts 4.7%, Illinois 3.9% and Utah 2.7%, Sectors include state tax-backed 36.1%, local tax-backed 16.2%, transportation 15.5%, utility 14.5%, school districts 7.6% and education 6.0%.
For more information on new fund products, visit our new ETFs category.
Money managers who are looking into constructing their own ETFs may also be interested in attending the second annual ETF Boot Camp in New York later this month. Whether you’re an ETF start-up, fund company, broker dealer, pension plan, endowment, private equity firm, fund board independent director, 401k plan provider or ETF industry executive…this conference is designed for you. This one-of-a-kind event will condense everything you need to know about the inner workings of the ETF business into two days.
Max Chen contributed to this article.