IndexIQ goes active with two municipal bond ETFs

Oct 19th, 2017 | By | Category: Fixed Income

New York-based asset manager IndexIQ has begun its foray into the actively managed ETF space with the launch of two new funds targeting the municipal bond market. The IQ MacKay Shields Municipal Intermediate ETF (NYSE Arca: MMIT) and the IQ MacKay Shields Municipal Insured ETF (NYSE Arca: MMIN) are the latest additions to the firm’s fast-growing suite of fixed income ETF offerings.

IndexIQ goes active with two municipal bond ETFs

IndexIQ’s chief investment officer Salvatore Bruno.

MMIT seeks current income exempt from federal income tax by investing primarily in investment grade municipal bonds. Its benchmark is the Bloomberg Barclays Municipal Bond 1 -15 Yr Blend Index.

MMIN seeks current income exempt from federal income tax by principally investing in investment-grade municipal bonds covered by an insurance policy guaranteeing the payment of principal and interest. Its benchmark is the Bloomberg Barclays Municipal Insured Bond Index.

Each fund has a total expense ratio of 0.30% due to a contractual fee waiver in place until at least September 2018. Their gross expense ratios are 0.57%. Both distribute income to investors on a monthly basis.

Both funds are actively managed by subadvisor MacKay Municipal Managers of MacKay Shields, and will be led by co-CIOs John Loffredo and Robert DiMella who collectively have over 50 years of investment experience and have managed municipal strategies together for over 20 years.

David Dowden, portfolio manager at MacKay Municipal Managers, said: “A number of major changes have taken place in the municipal bond category in recent years, introducing new risks and inefficiencies.

“The benefits of active management in the municipal bond arena are clear when one looks at the dizzying array of credit types available, the substantial number of new issuances entering the market each year, and the dramatically different liquidity environment to be found in the space now. Much of the alpha to be generated in municipal bonds is based on market access and a strong understanding of supply and demand dynamics; all of which we strive to deliver to clients.”

Salvatore Bruno, chief investment officer with IndexIQ, added: “These products allow us to bring the municipal bond expertise of MacKay Shields, a fellow New York Life Investment Management boutique, to investors through an innovative, cost-effective ETF chassis. We expect that these new products will allow more investors to gain the benefits of exposure to this complex, yet important, sector of the bond market.”

MMIT and MMIN join a growing family of fixed income ETF offerings from IndexIQ, including three first-of-their-kind factor-based fixed income offerings. These include the IQ Enhanced Core Bond US ETF (NYSE Arca: AGGE) and IQ Enhanced Core Plus Bond US ETF (NYSE Arca: AGGP), which were launched in May of 2016. The ETFs adopt a ‘fund of funds’ structure, investing in fixed income sector ETFs that are displaying the strongest positive total return momentum (see: “IndexIQ launches first smart beta fixed income ETFs”).

Additionally, the IQ S&P High Yield Low Volatility Bond ETF (NYSE Arca: HYLV), the first high-yield low-volatility fixed income ETF, was launched in February of 2017 (see: “IndexIQ introduces US High Yield ETF with low volatility factor exposure”).

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