Avantis Investors, a subsidiary of American Century Investments, has introduced a new fixed income ETF providing actively managed exposure to the municipal bond market.
The Avantis Core Municipal Fixed Income ETF (AVMU US) has listed on NYSE Arca and comes to market with $15 million in assets under management.
The management of the fund will be led by Eduardo Repetto, Avantis CIO, who previously served as co-CEO of Dimensional Fund Advisors, one of the pioneering firms in smart beta.
Repetto will be supported by three Senior Portfolio Managers – Daniel Ong, also an alumnus of Dimensional Fund Advisors, as well as Hozef Arif and Mitchell Handa, both of whom held portfolio management positions with fixed income specialist PIMCO.
Similar to the firm’s existing two fixed income ETFs which launched in October, the new fund has been designed to fit into investors’ asset allocations as a low-cost core portfolio solution. It comes with an expense ratio of just 0.15%.
Repetto said, “We’re very happy to add a municipal bond strategy to our new fixed income line-up. We know clients are looking for well-designed, low-cost solutions that offer the potential benefit of current income with tax advantages to their investment portfolios.”
Investment strategy
The ETF seeks to provide current income that is exempt from federal income tax with distributions being made to investors on a monthly basis.
To meet this objective, the fund invests in a broad range of investment-grade municipal debt securities including revenue bonds, general obligation bonds, municipal lease obligations, and industrial development bonds.
The ETF provides broad maturity exposure, maintaining a weighted average duration within two years of the benchmark S&P National AMT-Free Municipal Bond Index.
Eligible securities are sorted into groups based on factors such as sector, credit rating, and duration. The implied expected return of each group is calculated using security prices and looking at the whole term structure of interest rates while considering valuation metrics such as yield, duration, and option-adjusted spreads.
Avantis then sets the portfolio weights for each component group in a bid to maximize return and manage risk more effectively compared to the fund’s benchmark.