Rieger Report: Invesco Taxable Municipal Bond ETF (BAB)

Invesco Taxable Municipal Bond ETF (BAB) vs. Investment Grade Corporate Bond ETFs: Key Takeaways

Currently, there is one taxable municipal bond ETF of size: Invesco Taxable Municipal Bond ETF (Symbol: BAB) ($944mill AUM)

The benefits:

  • Cost: Low cost passive access to the taxable U.S. municipal bond market: Management Fee = 20bps
  • Quality: Investment grade taxable municipal bonds tend to have overall higher ratings than investment grade corporate bonds
  • Yield: Comparable yield characteristics to similar investment grade U.S. corporate bond ETFs (slightly lower due to quality and technical market factors)
  • SEC 30 Day: 3.77%
  • Yield to Worst: 4.07%
  • Yield to Maturity: 4.68%
  • Duration: Comparable to investment grade corporate bond ETFs
  • Technical factors: The taxable municipal bond market has a severe supply / demand imbalance, with recent supply making only a small dent to offset the demand
  • Diversification: Potentially good diversifier for investors in U.S. credit

The challenges:

  • ETF Liquidity: Currently, BAB has lower ETF share trading volume v. comparisons in the investment grade U.S. corporate bond ETFs
  • Liquidity: In general, the taxable municipal bond market is less liquid than the investment grade corporate bond market
  • Tracking Error: The one year tracking error of the ETF v. it’s index as of May 31, 2018 was 58bps
  • Not of major concern given the nature of the muni market but something to keep an eye on

Rieger Report Bottom Line:

Good diversification option for U.S. and global taxable bond investors.

Data as of 6/22/2018 or as otherwise stated. Sources: Invesco www.invesco.com. Past performance is not indicative of future results.

Taxable Muni vs. Investment Grade Corporate Bond ETFs:
(Over $500million in Assets)


1. Assets Under Management. 2 As of 5/31/2018

Data as of 6/22/2018 or as otherwise stated. Sources: ishares by Blackrock, https://www.ishares.com/us, PIMCO www.pimco.com, Invesco www.invesco.com. Table is shown for illustrative purposes only. Past performance is not indicative of future results.

Analyst Disclosure:

  • JR Rieger and or the Rieger Report LLC has not received compensation from the sponsor(s) of the ETFs included, either directly or indirectly, for authoring and publishing this report.
  • At the time of this writing, JR Rieger does not own the ETF(s) cited in this report.
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