State Street Global Advisors has expanded its suite of municipal bond ETFs launched in partnership with Nuveen, an operating division of TIAA Global Asset Management.

Brie Williams, Head of Practice Management at State Street Global Advisors.

The actively managed SPDR Nuveen Municipal Bond ESG ETF (MBNE US) provides exposure to municipal issuers exhibiting strong environmental stewardship, robust governance, and positive social impact.

The fund has been listed on Cboe BZX Exchange and has come to market with $30 million in assets.

The ETF is overseen by Nuveen portfolio managers Tim Ryan, Managing Director; Shawn O’Leary, Senior Vice President; and David Blair, Managing Director, who collectively bring more than 70 years of experience investing in the municipal bond market.

The fund’s managers select securities primarily from a universe of securities represented by the constituents of the Bloomberg Barclays 3-15 Year Blend (2-17) Municipal Bond Index, an index comprising investment-grade municipal securities ranging from 2 to 17 years in maturity.

The index covers a broad range of municipal securities including state and local general obligation bonds, revenue bonds, pre-refunded bonds, insured bonds, and municipal lease obligations.

While the fund is expected to invest mostly in high-quality credits, up to 20% of the portfolio may be allocated to bonds rated below BBB+. This includes junk bonds as well as securities classified within the ‘lower medium grade’ of the investment-grade universe.

Nuveen harnesses proprietary ESG analysis to evaluate how closely a municipal issuer is aligned with UN Sustainable Development Goals, a collection of goals established by the United Nations that seek to address a range of global challenges including poverty, inequality, climate change, environmental degradation, peace, and justice. Nuveen’s framework assigns each issuer a score between one and five.

Generally, only bonds from issuers with a score of three or higher will be eligible for inclusion in the ETF’s portfolio, although up to 20% of the fund’s assets may be allocated to bonds from unrated issuers or issuers with ratings below three if the proceeds of those bonds have been certified specifically earmarked for projects with positive social impacts.

When selecting individual securities, Nuveen utilizes a rules-based, value-oriented strategy designed to identify higher-yielding and undervalued municipal bonds that offer above-average total return potential. The approach combines top-down duration, sector, and credit quality guidance provided by Nuveen’s investment committee with deep credit research.

The fund targets a weighted average duration between 4.5 and 7 years and a weighted average maturity between 5 and 12 years. Individual securities and municipal sectors are limited to deviations of 5% and 10%, respectively, compared to their weights in the benchmark index.

The ETF comes with an expense ratio of 0.43%, slightly higher than the SPDR Nuveen Municipal Bond ETF (MBND US) which costs 0.40% and follows the same selection approach as described above but does not incorporate Nuveen’s ESG framework.

SSGA offers a further three muni bond ETFs in partnership with Nuveen. The SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF (SHM US), SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI US), and SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF (HYMB US) are passively managed, tracking indices targeting the short-term, broad-maturity, and high-yield segments of the muni market. Collectively, the five ETFs house nearly $12 billion in assets.

Brie Williams, Head of Practice Management at State Street Global Advisors, said: “The prospect of higher taxes coupled with rising uncertainty surrounding future interest rate hikes has increased demand for actively managed municipal bond ETFs. At the same time demand for municipal bond exposure is growing, investors are increasingly looking beyond equities for ESG exposure which is why we’re excited about the expansion of our SPDR ETF municipal bond line-up and the partnership we’ve built with Nuveen.”

Tim Ryan, Portfolio Manager at Nuveen, added: “As investors become more familiar with ESG-integrated strategies, Nuveen has created a proprietary framework that is designed to identify the municipal bond issuers that support income generation for investors and achieve positive ESG outcomes in their communities. The fund is also designed to provide exposure to bonds whose proceeds are used towards positive environmental or social projects addressing critical issues including climate change, environmental degradation, inequality, poverty, and justice and are aligned with the UN Sustainable Development Goals.”