iShares, the world’s largest provider of exchange-traded funds and a division of investment giant BlackRock, has launched two new target-maturity municipal bond ETFs on the NYSE Arca to assist investors wishing to manage the interest rate risk of their portfolios.

iShares has expanded its suite of target-maturity municipal bond ETFs with the launch of two new funds on the NYSE Arca.

The iBonds Dec 2021 AMT-Free Muni Bond ETF (NYSEArca: IBMJ) and iBonds Dec 2022 AMT-Free Muni Bond ETF (NYSEArca: IBMK), which started trading on 1 September, hold US municipal bonds with maturities due in December 2021 and December 2022 respectively.

The new funds complement an existing range of fixed-maturity municipal bond ETFs, launched in 2010, with expirations set for September 2016-2020.

By setting a target maturity for these funds, investors may choose to utilise them to fulfil the fixed income portion of their portfolios in a likewise fashion to holding actual bonds.

Indeed, as the funds will be terminated on specified dates, they are designed to be held to maturity where upon the full value of the principal will be returned to investors. In comparison, other bond ETFs may jeopardise the value of principal if interest rates rise and bonds are sold prior to maturity.

In conjunction with each other, the suite of muni-bonds ETFs can be used to construct a laddered bond portfolio holding a range of bonds with maturities spaced evenly apart. In this way the investor could systematically re-invest the proceeds from maturing bonds at regular intervals. Other added benefits of laddered portfolios include increasing liquidity through holding a diverse range of bonds and reducing interest rate risk through a wider dispersion of duration.

Not only does this fund suite provide a means for traditional fixed income exposure within a portfolio, it also supplies the added benefit of the ETF structure, namely enhanced transparency, diversification and tradability.

As of 7 September 2015, the iBonds Dec 2021 AMT-Free Muni Bond ETF held 76 securities diversified across 28 states with the main exposures being to New York (15.3%), Florida (10.6%), Washington (10.0%) and Texas (7.9%). Segment exposures include state tax-backed (35.3%), transportation (17.2%), local tax-backed (15.4%), utilities (12.2%) and education (11.1%). Bonds held are all investment grade, ranging from AAA (12.6%), AA (65.6%) and A (20.9%). The weighted average coupon is 4.7%, the effective duration is 5.1 years and the weighted average yield-to-maturity is 1.8%.

The iBonds Dec 2022 AMT-Free Muni Bond ETF held 68 securities across 24 states with top holdings concentrated in California (14.5%), Texas (11.6%), New York (10.8%), Washington (9.5%) and Florida (9.2%). Segment exposures include state tax-backed (36.1%), local tax-backed (16.2%), transportation (15.6%), utility (14.5%) and school districts (7.6%). The fund holds bonds rated AAA (15.0%), AA (61.2%) and A (22.1%). The weighted average coupon is 4.7%, the effective duration is 5.9 years and the weighted average yield-to-maturity is 2.0%.

Both funds have total expense ratios of 0.18%.

The existing iBond suite consists of the following offerings:

iBonds Sep 2016 AMT-Free Muni Bond ETF (NYSEArca: IBME)

iBonds Sep 2017 AMT-Free Muni Bond ETF (NYSEArca: IBMF)

iBonds Sep 2018 AMT-Free Muni Bond ETF (NYSEArca: IBMG)

iBonds Sep 2019 AMT-Free Muni Bond ETF (NYSEArca: IBMH)

iBonds Sep 2020 AMT-Free Muni Bond ETF (NYSEArca: IBMI)