Market Overview

New Municipal Bond ETF From BlackRock

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New Municipal Bond ETF From BlackRock

The world's largest issuer of exchange-traded funds, BlackRock, Inc. (NYSE: BLK), added another fixed-income ETF to its lineup. The iShares Short Maturity Municipal Bond ETF (NYSE: MEAR)(BATS: MEAR) aims to maximize tax-free income by providing exposure to short-term municipal bonds with maturities of less than five years.

Municipal Bond Appeal

Municipal bonds offer a great tax advantage, in particular to investors that are in a high tax bracket. On a comparison basis, municipal bond yields relative to Treasuries are appealing at this time. At the end of 2014, the 30-year municipal bond had a yield of 2.5 percent versus the 30-year treasuries of 2.22 percent. After factoring in the tax exemption, the municipal bond offers a 4.42 percent taxable equivalent yield.

Despite the looming rate hikes by the Federal Reserve, investors are still plowing money into fixed-income securities. "Investors have added about $1 billion to ETFs that purchase state and local bonds, the fastest annual start since the funds started in 2007," reports Michelle Kaske for Bloomberg.

Related Link: BlackRock Launches iShares Short Maturity Municipal Bond ETF

A Closer Look At MEAR

MEAR is made up municipal bonds from 15 states, with New Jersey at 7.9 percent and New York at 7.4 percent being the most heavily weighted states.

Cash and/or derivatives are by far the most weighted holding at 55.7 percent of the ETF. In terms of maturity and credit rating, 34 percent mature within three years and 10.4 percent mature between three and six years. As far as quality, 29 percent hold a rating of AA and 12.5 percent have a rating of A.

The ETF has an expense ratio of 0.25 percent. MEAR is the second fixed-income ETF launched by BlackRock in the last few weeks. In February, the firm launched the iShares U.S. Fixed Income Balanced Risk ETF, which seeks to balance interest rate and credit risk, and is also traded on the BATS exchange.

 

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