Two new Standard & Poor’s indexes tracking municipal bonds launched yesterday, paving the way for Vanguard to enter the municipal exchange-traded fund business.

Vanguard, which is based in Valley Forge, Pa., in June announced plans to launch three muni bond ETFs — one each for short-, intermediate-, and long-term munis. These passively managed ETFs will be designed to mimic the performance of a target index maintained by Standard & Poor’s. Before the ETFs could launch, Standard & Poor’s had to create the indexes the funds will be created to track.

Standard & Poor’s yesterday created indexes for the short and intermediate ETFs — called respectively the S&P 1-5 Year National AMT-Free Municipal Bond Index and the S&P Intermediate Term National AMT-Free Municipal Bond Index.

Vanguard’s long-term ETF will track the S&P National AMT-Free Municipal Bond Index, which has existed since it was created at the behest of iShares when that company launched its long-term muni ETF in 2007.

The $1.97 billion iShares S&P National AMT-Free Municipal Bond Fund remains the biggest muni ETF. There are at least 29 municipal ETFs with $7.49 billion in assets. Vanguard would be the second fund complex to try and mirror Standard & Poor’s indexes. The iShares brand, which runs $2.76 billion in municipal ETFs, also tracks Standard & Poor’s indexes.

Invesco Powershares’ $1.4 billion in muni ETFs track Bank of America Merrill Lynch indexes, with the exception of the $750 million variable-rate demand obligation fund, which tracks Municipal Market Data’s VRDO index. The Van Eck and State Street Global Advisors complexes, which respectively manage $523.7 million and $2.33 billion in muni ETFs, both track Barclays indexes.

Pacific Investment Management Co.’s two muni ETFs and Grail McDonnell’s fund also track Barclays, though the ETFs are actively managed — meaning they try to beat their indexes rather than match them.

Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access