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)

TaxableMuni_InvestmentGradeCorporateBondETFs

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.
Copyright © 2018 Rieger Report LLC. All rights reserved. Redistribution in whole or in part is prohibited without written permission of the Rieger Report LLC. All information provided by the Rieger Report LLC is for informational purposes only, impersonal, and not tailored to the needs of any person, entity or group or persons. It should not be considered financial advice. The Rieger Report LLC receives compensation in connection with licensing its research, advertising on its website, speaking and consulting services.
Past performance of any investment product or index referenced in the Rieger Report is not an indication of or guarantee of future results.
The Rieger Report LLC is not an investment advisor, and the Rieger Report LLC makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. A financial advisor should be contacted to determine what may be best for your individual needs. The Rieger Report LLC is not a financial or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. No legal relationship is created between you and Rieger Report LLC.
The Rieger Report LLC does not act as a fiduciary or investment advisor. While the Rieger Report LLC has obtained information from sources it believes to be reliable, the Rieger Report LLC does not perform any audit or undertake verification of any information it receives.
The Rieger Report Rankings are opinions of relative ranking among the peer group analyzed as of the date expressed and not statements of facts. Rieger Report model portfolios are intended for illustration only. Any opinion or analysis decisions are not to be construed as recommendations to purchase, hold or sell any securities or to make any investment decisions, and do not address the suitability of any security. The Rieger Report LLC does not assume any obligation to update the content in this publication in any form or format.
Your use of any information from this document or presentation is at your own risk and without recourse against Rieger Report LLC, its members, managers, or employees. To the maximum extent permitted by law, Rieger Report LLC disclaims any and all liability in the event any information, commentary, analysis, and/or opinions prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.