VanEck Global this week added two new funds to its product lineup, bringing its suite of municipal exchange-traded funds to nine.
The new ETFs are intended to offer investors an opportunity to take advantage of the historical steepness of the intermediate portion of the yield curve, the firm said.
The new funds, the VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF and the VanEck Vectors AMT-Free 6-8 Year Municipal Index ETF, debuted at $5 million.
"With the potential for rising rates back on the table, we wanted to provide additional options for investors who still want exposure to the intermediate part of the curve," Michael Cohick ,product manager told The Bond Buyer on Wednesday, a day after the funds were launched on the Kansas City-based Bats Global Markets Inc. exchange for ETF trading, under the ticker symbols ITML and ITMS, respectively.
He said the funds, which are the firm's first two municipal ETFs to be listed on Bats, offer added flexibility in a potentially changing rate environment.
"If they fear a rate hike they may want a shorter duration by using ITMS, which focuses on the 6- to 8-year portion," the product manager said. "If they believe rates will remain steady, they may want ITML, which focuses on the 12 to 17-year portion for a yield pick-up."
ETFs are investment vehicles traded on a primary exchange, like stocks or bonds, and represents a collection, or basket, of assets, and usually track an index.
The ITML ETF seeks to track the Bloomberg Barclays AMT-Free 12-17 Year Intermediate Continuous Municipal Index, while the ITMS ETF seeks to track the Bloomberg Barclays AMT-Free 6-8 Year Intermediate Continuous Municipal Index.
The funds were carved out of the larger, flagship AMT-Free Intermediate Municipal Index ETF, [Ticker: ITM], which was launched in December, 2007, and was the firm's first foray into the fixed income market, according to Cohick.
That index's exposure represents a swath of the intermediate part of the yield curve from 6 to 17 years, he said. "We took the broader index and carved out these two indices," Cohick explained.
He said the two new ETFs share the same 24 basis-point net expense ratio as the flagship ITM, and like it, they are investment grade quality from triple-B to triple-A, own a diverse range of issuers and sectors from many states.
In addition to the flagship fund, the firm also offers the AMT-Free Long Municipal Index ETF [MLN], AMT-Free Short Municipal Index ETF [SMB], the Closed-End Fund Municipal Income ETF [XMPT], the High-Yield Municipal Index ETF [HYD], the Pre-Refunded Municipal Index ETF [PRB], and the Short High-Yield Municipal Index ETF [SHYD].
The new funds offer two investment options – ITMS tailored to more conservative investors and ITML to more aggressive, yield-oriented investors.
"We are providing a little more flexibility by honing in on these two slices of the intermediate part of the yield curve," Cohick said. "These will allow for greater flexibility to target duration," especially if investors wish to change allocations based on their expectations of interest rate movements, he added.
Cohick said the firm continues to seek out "blank spaces" in the municipal market to help "fill in" those voids and help investors gain "access in ways that offer attractive income while always being mindful of trying to minimize risk."
Since the launch of its first municipal ETF nine years ago, municipal ETFs have grown to over $4.6 billion of assets under management across the suite, according to Cohick.
"There's still a lot of discussion about a Fed rate hike and we thought it was a good time to provide the extra options should the hike come," Cohick said of the timing of its latest product launch. "Hopefully they will garner attention given where we are in the interest rate cycle."
