A Smart Beta Muni ETF to Address the Shortcomings of Traditional Benchmarks

Specifically, the underlying portfolio includes a 25% tilt toward shorter, high quality muni debt securities, which provides stability and buoys lower-rated, higher yielding bonds; 45% toward all-weather core positions, which balance duration and credit risk by targeting lower-rated investment grade and intermediate-term revenue bonds; and 30% in longer, low quality debt, which pursues a higher level of income via credit risk in an attempt to mitigate interest rate sensitivity.

Furthermore, the smart beta strategy excludes pre-refunded bonds due to their lower yield potential, California bonds due to high in-state demand leading to lower yields and relatively higher premiums, and U.S. territories and Tobacco to dampen volatility.

“These are thoughtfully constructed indices and there are parts of each sector that we find more efficient than others, and we try to hone that portfolio into those areas,” Zeitoun added.

For more market-related commentary from Tom Lydon and other industry experts, visit our ETF Trends video category.