Virtus ETF Solutions, in partnership with Cumberland Advisors, has introduced the Virtus Cumberland Municipal Bond ETF (NYSE: CUMB), an actively managed exchange-traded fund investing in a basket of municipal bonds.
The Virtus Cumberland Municipal Bond ETF (NYSE: CUMB) will invest in local, state and federal bonds with an emphasis on shorter-term and longer-term bonds.
Municipal bonds are debt securities issued by a state, municipality or county to finance its capital expenditures. They are exempt from federal taxes and from most state and local taxes. Municipal bonds fall within two general categories: general obligation bonds (those that are secured by the authority’s pledge to use tax revenues to repay bond holders) and revenue bonds (those that rely on income generated from a specific project into which the funds were allocated to repay bond holders).
The stewardship of the fund’s investment strategy will be attended to by David Kotok, Cumberland Advisors Chief Investment Officer, and John Mousseau, Director of Fixed Income and Portfolio Manager for Cumberland Advisors.
The fund employs a barbell structure emphasizing shorter-term and longer-term bonds. According to Cumberland, this helps the fund benefit from the steepness of the municipal yield curve and allows it to capitalize from moves in the municipal bond yield curve and municipal “centric” events, such as pre-refundings of municipal bonds and upgrades of municipal credits. The strategy also permits allocations across local, state and federal bonds, placing an emphasis on quality issues, and enjoys the flexibility to favour shorter maturities should interest rates rise.
“We believe the current market offers great value in municipal bonds, particularly in intermediate and longer maturity bonds, especially when compared to traditional valuations versus US Treasuries,” notes Kotok. “The Virtus Cumberland Municipal Bond ETF will give investors the opportunity to obtain total return and diversification in the municipal bond market while capitalizing on Cumberland’s 40 years of experience in bond management.”
The fund has a gross expense ratio of 0.80%; however, due to a contractual expense reimbursement in place until 28 February 2017, the applicable total expense ratio (TER) is 0.59%. It is Cumberland’s first ETF launched in conjunction with Virtus ETF Solutions.
“We’re thrilled to add [the fund] to our growing ETF family, and we believe municipal bonds is an asset class that is best managed by a blue chip sector specialist like Cumberland Advisors,” said William Smalley, Executive Managing Director, Virtus ETF Solutions. “We have taken a thoughtful approach to new product origination and will continue to leverage best-of-breed investment managers as we bolster our suite of alpha-seeking ETF solutions.”
Investors who are content with a passive investment into the US municipal bond market may wish to consider well diversified, low-cost ETFs from iShares and SPDR ETFs.
The iShares National Muni Bond ETF (NYSE: MUB) has over $8.2bn in assets under management, making it the largest ETF to track the US municipal bond market, and with over 3,000 holdings offers a diversified investment across location and sector. It has a TER of 0.25%.
The SPDR Nuveen Barclays Municipal Bond ETF (NYSE: TFI) invests its $2.0bn in AUM across 880 holdings. It has a TER of 0.23%.