SSGA debuts first active muni bond ETF with Nuveen

Feb 5th, 2021 | By | Category: Fixed Income

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State Street Global Advisors (SSGA) has expanded its suite of fixed income ETFs with the introduction of its first actively managed municipal bond ETF.

Sue Thompson, Head of SPDR Americas Distribution at State Street Global Advisors

Sue Thompson, Head of SPDR Americas Distribution at State Street Global Advisors.

The SPDR Nuveen Municipal Bond ETF (MBND US) has listed on Cboe BZX Exchange and comes with an expense ratio of 0.40%.

As with the firm’s existing muni bond ETFs, the new fund has been launched in partnership with Nuveen, an operating division of TIAA Global Asset Management.

Sue Thompson, Head of SPDR Americas Distribution at State Street Global Advisors, commented: “We’re excited to expand our relationship with Nuveen, a recognized leader in municipal bond investing, by offering a fund that aims to identify undervalued opportunities in the muni bond market and generate tax-exempt income.

“Given the challenges facing fixed income investors after more than a decade of falling interest rates, we believe an actively managed municipal bond ETF can add value to client portfolios.”

Investment approach

The ETF is managed by portfolio managers Timothy Ryan, Managing Director, and Steven Hlavin, Senior Vice President at Nuveen, and seeks current income that is exempt from federal income taxes with a secondary objective of capital appreciation.

The fund’s managers select securities primarily from a universe of securities represented by the constituents of the Bloomberg Barclays 3-15 Year Blend (2-17) Municipal Bond Index, an index comprising investment-grade municipal securities ranging from 2 to 17 years in maturity.

While the fund is expected to invest mostly in high-quality credits, up to 20% of the portfolio may be allocated to bonds rated below BBB+. This includes junk bonds as well as securities classified within the ‘lower medium grade’ of the investment-grade universe.

The fund may hold a broad range of municipal securities including state and local general obligation bonds, revenue bonds, pre-refunded bonds, insured bonds, and municipal lease obligations.

Nuveen utilizes a rules-based, value-oriented strategy designed to identify higher-yielding and undervalued municipal bonds that offer above-average total return potential. The approach combines top-down duration, sector, and credit quality guidance provided by Nuveen’s investment committee with deep credit research.

The fund targets a weighted average duration between 4.5 and 7 years and a weighted average maturity between 5 and 12 years. Individual securities and municipal sectors are limited to deviations of 5% and 10%, respectively, compared to their weights in the benchmark index.

Nuveen’s Ryan said: “As the search for yield continues to be top of mind for investors in the current low-rate environment, recent monetary policy and liquidity support may create significant tailwinds for municipal bonds. We think an actively managed municipal strategy offers investors an opportunity to generate additional yield from the key tax benefits offered by municipal investments.”

The other funds in SSGA’s muni bond ETF suite are the SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF (SHM US), the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI US), and the SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF (HYMB US), all of which are index-based. The funds target the short-term, broad-maturity, and high-yield segments of the muni market and collectively house $9.5bn in assets under management.

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