Rieger Report: iShares iBond Municipal ETFs

iShares iBond Municipal ETFs

I like the concept(s) and innovation that iShares by BlackRock has brought to the market with their municipal iBond offering:   Simply put, they work.

  • Design: The iBond ETFs are designed to mature like a bond & trade like a stock: By my count there has been 7 iBond Municipal ETFs that reached their final “maturity” and dispersed funds to investors in a similar fashion to a bond maturing
  • Result: An effective laddering tool for investors seeking low transaction cost exposure to specific maturity ranges
  • AUM: There is well over $1billion invested in the iBond Municipal ETFs
  • Quality: High quality tax-exempt exposure (82% by market value of the IBMN Dec 2025 iBond consists of AA and higher rated bonds)
  • Diversification: Each iBond Municipal ETF holds hundreds of bonds and no one State or issuer dominates
  • Yield: Impressively tight to the AA tax-exempt municipal bond market yield for each “maturing” year

iShares iBond Municipal ETFs

riegerreport_ishares_chart_012619

Sources: iShares by BlackRock. Table is shown for illustrative purposes only. Past performance is not indicative of future results. Data as of 1/25/2019.

iShares iBond Municipal ETFs

riegerreport_ishares_chart2_012619

Sources: iShares by BlackRock and BondWave. Table is shown for illustrative purposes only. Past performance is not indicative of future results. Data as of 1/25/2019.

How the iBonds by iShares work using the IBMN iBond Dec 2024 Municipal ETF as an example:

  • Maturity: IBMN Dec 2024 is designed to provide exposure ONLY to bonds maturing after December 31, 2023 and before December 2, 2024 instead of number of years maturity (i.e. 5 years)
  • When new issues that qualify sell in the primary market they are added to the ETF. So there is a “current market” reflection due to the new issue inclusion
  • The roll down affect: Since only 2024 bonds are included, next year this will represent a 4 year market segment
  • Bonds are sold if they no longer qualify due to qualification rules such as if the rating of the bond fell below investment grade

Benefits:

  • Simple, low cost exposure to high quality tax-exempt municipal bonds in specific maturity date ranges.
  • Efficient exposure as the fund is buying bonds at institutional spreads and not higher cost retail spreads

Drawbacks:

  • iShares management fee of 18bps, while low by any standard, still chews up some yield in this low rate environment
  • Acceptance and use of the “longer” iBond ETFs is a factor to consider

Innovation:

  • I look to iShares for more innovation as these tools grow in use and popularity

Sources and Analyst Disclosure

Sources:

Disclosure:

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

Click here for a print friendly version of this report.

Copyright © 2019 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.