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Eaton Vance Launches Laddered Municipal Bond ETF

Global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, treasury yields are also showing a downtrend.
In fact, all these uncertainties led to the central bank lowering the number of hikes and the projected federal funds rate this year. It now expects the federal funds rate to rise to 0.875% by the end of the year, instead of the previously expected 1.375%, implying only two rate hikes as compared to the four outlined in December. Last month, the Fed Chair stated that the U.S. central bank should proceed cautiously in adjusting policy rates (read: ETF Winners & Losers Following Yellen Comments).
Because of these factors, bond ETFs have of late gained a lot of popularity as investors continue to search for attractive and stable yield in this ultralow rate interest environment (read: Best Performing Bond ETFs of Q1).
Eaton Vance Corp. looks to cash in this trend and has launched a NextShares exchange-traded managed fund – Eaton Vance TABS 5-to-15 Year Laddered Municipal Bond NextShares (EVLMC).
Below, we have highlighted details relating to the newly launched fund.
EVLMC in Focus
Listed on the NASDAQ, the product is an actively managed ETF and does not track any specific index. It seeks to build on current income, which is exempt from tax. The fund seeks to maintain approximately equal-weighted exposures across the 5-to-15 year municipal bonds. It holds investments on an indirect basis through a separate registered investment company, 5-to-15 Year Laddered Municipal Bond Portfolio, using a master-feeder structure.
The fund has an expense ratio of 0.35% and invests in municipal bonds with credit rating of “BBB” or higher. It holds 360 bonds in total with average effective maturity of 10.49 years and average duration of 6.56 years. None of the securities holds more than 1.2% of the assets. From a sector perspective, General Obligations takes the top spot with about 25.6% of the basket followed by Insured (12.9%), Hospital (10.4%), Other Revenue (7.7%) and Appropriation (6.7%). As for maturity, the fund is well diversified with bonds maturing between 5 to 10 years (43.1%) and 10 to 20 years (52.4%) (see all Municipal Bond ETFs here).
How Could it Fit in a Portfolio?
The ETF could be well suited for income-oriented investors seeking stable income with low risk. The rules-based, laddered strategy of the fund could even attract investors concerned about rising interest rates. Additionally, the interest income from municipal bond is exempt from federal tax and may also not be taxable per state laws, making them especially attractive for investors in the high tax bracket, looking to reduce their tax liability.
With the Fed taking a gradual stance on the rate hike issue, the higher yield nature of municipal bonds should keep it in a straight up trajectory. However, investors looking for a high-growth vehicle may not be satisfied with this product.
NextShares is an exchange-traded managed fund, a hybrid between traditional mutual fund and exchange-traded fund. These provide investors with benefits of passive management in the form of reduced expenses and increased transparency.
The ETF does not have any direct competitor as there is currently no other actively managed 5-15 year municipal bond NextShares available to U.S. investors. The fund provides investors a new way to play the high yield bond market with investment grade municipal bonds. Thus, it could reap significant gains from its first-mover advantage.
However, there are quite a few muni bond ETFs targeting intermediate-term maturities. Of these, the popular fund, Market Vectors AMT-Free Intermediate Municipal Index ETF (ITM), has a total asset base of $1.4 billion. This fund tracks the Barclays AMT-Free Intermediate Continuous Municipal Index and trades in moderate volume of 408,000 shares per day and charges 24 bps in annual fees.
Another fund targeting the municipal bond space PIMCO Intermediate Municipal Bond Active Exchange-Traded Fund (MUNI) has AUM of nearly $245.7 million and exchanges 27,000 shares a day (read: Muni Bond ETFs that Lately Hit a 52-Week High).
Apart from these, EVLMC could also face competition from other municipal bond funds including Columbia Intermediate Municipal Bond ETF (GMMB) with an asset base of $5.4 million among others.
Given this, it is difficult to predict how Eaton Vance’s new product will perform. However, if the product does succeed in generating returns in excess of the traditional ETFs, then it might gain investor interest and in turn gather a sizable asset base.
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EV-TB 5-15YLMNS (EVLMC): ETF Research Reports
MKT VEC-ITM MUN (ITM): ETF Research Reports
PIMCO-ITM MU BD (MUNI): ETF Research Reports
COLUMBIA IMB (GMMB): ETF Research Reports
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