Invesco has expanded its fixed income range with the launch of Europe’s first US municipal bond ETF, ETF Stream can reveal.
The Invesco US Municipal Bond UCITS ETF (MUNI) is listed on the London Stock Exchange (LSE) and Deutsche Boerse with a total expense ratio (TER) of 0.28%.
Tracking the ICE BofAML US Taxable Municipal Securities Plus index, MUNI offers investors exposure to municipal debt publicly issued by US states and territories and their political subdivisions.
Rebalanced monthly, MUNI will be a mirror strategy of the US-listed Invesco Taxable Municipal Bond ETF (BAB) which has captured $2.4bn assets under management (AUM) since launch in 2009.
Municipal bonds are issued by US local governments either as taxable or tax-exempt debt depending on what they are being used to finance.
Unlike the more common tax-exempt variety, the interest from taxable municipal bonds is not subsidised by the federal government.
Over the past two years, there has been an increase in the issuance of taxable municipal bonds driven by a recent change to US tax law. According to Invesco, almost $140bn of debt was issued in 2020 versus an average of under $30bn between 2011 and 2018.
Gary Buxton (pictured), head of EMEA ETFs and indexed Strategies at Invesco, commented: “This launch opens the door to an asset class that until now has been difficult for investors to access.
“Municipal bonds offer higher yields, better average credit ratings and much lower default rates than US investment grade credit. We believe that unusual profile could make them attractive for many income investors.”
Paul Syms, head of EMEA ETF fixed income product management at Invesco, added: “Taxable munis and investment grade credit have demonstrated high correlation historically, but munis have not participated to the same extent in the rally that has driven the credit market since the Federal Reserve initiated its bond-buying programme last year.
“We see its potential as an almost like-for-like replacement for some of an investor’s corporate credit exposure, albeit with slightly longer duration.”
Invesco's focus on more niche areas of the fixed income ETF market has paid dividends over the past year. Last month, the firm saw its CoCo bond ETF, the Invesco AT1 Capital Bond UCITS ETF (AT1), pass $1bn assets under management (AUM).