iShares — the biggest ETF sponsor in the world — is continually striving to boost its presence in the fixed income space. Last December the issuer had filed for several target-date-maturity corporate bond ETFs covering the years 2017, 2019, 2021, 2022, 2023, 2024 and 2025 (read: iShares Outlines More Target Date Bond ETFs ).

Along with corporate bond ETFs, the issuer had also filed for a muni-bond ETF namely iBondsSep 2021 AMT-Free Muni Bond ETF. The issuer presently has six municipal bond target-maturity ETFs listed in the market, covering each year from 2015 through 2020.

Continuing the trend, iShares plans to further expand its existing lineup of municipal funds by filing a new fund iSharesiBonds Sep 2022 AMT-Free Muni Bond ETF.

iSharesiBonds Sep 2022 AMT-Free Muni Bond ETF in Focus

As per the Sec filing. the proposed ETF looks to track the S&P AMT-Free Municipal Series 2022 Index. The index measures the performance of investment-grade, non-callable U.S. municipal bonds maturing in 2022. The bonds must have a minimum par amount of at least $2 million.

The fund will generally invest in municipal bonds that are issued by state and local municipalities. The interest on these bonds should be exempted from the U.S. federal income tax and the federal alternative minimum tax (AMT).

In terms of credit quality, the product looks to focus on BBB- or higher rated bonds from Fitch and S&P or Baa3 or higher from Moody’s.

The issuer is yet to disclose the expense ratio and ticker for the fund.

How does it fit in a portfolio?

The newly filed fund primarily seeks to maximize current income in the form of interest at a time when investment in the fixed income space can be considered quite unattractive, given the extremely low interest rates and high bond prices.

Moreover, with an improving U.S. economy and a better job market, the Fed is likely to hike short-term rates this year, making short-term bond ETFs vulnerable to rising rates. However, the recently planned product, being an intermediate term bond ETF, should perform relatively better (read:  Target Date Bond ETFs: Best or Worst Fixed Income Funds? ).

Also, municipal bond ETFs will continue to attract investors as they seek tax shelters in a rising tax environment. The tax-free coupon makes muni funds attractive. The fund can also be a great pick for investors seeking to match assets with liabilities in order to have capital ready for a big purchase a few years from now.

Can it Succeed?

There are a couple of choices in the muni bond ETF space.

The most popular in the space is iShares’ own S&P National AMT-Free Muni Bond ETF ( MUB ), which has roughly $4.4 billion in AUM and charges 25 basis points as fees. Market Vectors Intermediate Municipal Index ETF ( ITM ) with an asset base of $913.3 million is another popular product in the space.

Apart from these funds, the proposed ETF will also face competition from the target date corporate bond ETF by Guggenheim — Guggenheim BulletShares 2022 Corporate Bond ETF ( BSCM ) (see all Municipal Bond ETFs here ).

The fund tracks the BulletShares USD Corporate Bond 2022 Index, providing exposure to investment grade corporate bonds with effective maturities in 2022. BSCM holds a basket of 181 securities with average maturity of 7.5 years and average duration of 6.37 years. The product manages an asset base of $78.2 million and charges 25 basis points as fees.

Given the competition in the fixed income space, it is hard to say how the proposed iShares targeted muni bond ETF will do in terms of investor interest if launched. But if it can manage to generate a decent yield and stable returns, it won’t be too hard to see big inflows.

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