Product Panel: Invesco’s municipal bond ETF

MUNI is Europe's first ETF to offer exposure to the US municipal bond market

Tom Eckett

a group of men in suits

Three of ETF Stream’s Product Panel have highlighted the access benefits Invesco’s municipal bond ETF will provide to investors.

Last week, ETF Stream revealed Invesco had launched Europe’s first US municipal bond ETF, the Invesco US Municipal Bond UCITS ETF (MUNI), on the London Stock Exchange and Deutsche Boerse.

MUNI offers investors exposure to municipal debt publicly issued by US local governments through the ICE BofAML US Taxable Municipal Securities Plus index.

Gary Buxton, 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.”

What the panel says:

John Leiper (pictured centre), CIO, Tavistock Wealth

Until now municipal bonds have remained the purview of institutional or US-based investors. With this new product launch that looks set to change and this new ETF represents a welcome addition to my tool box of investable assets.

There are a clear number of benefits from investing in municipal bonds which typically offer higher yields and lower credit risk than equivalent investment grade corporate bonds.

In the current climate, and given our outlook for higher rates, I am mindful of the slight pick-up in duration risk, but setting aside the tactical investment outlook, I see this as another positive step forward towards enhancing the range and scope of European listed ETFs.

Jose Garcia Zarate (pictured right), associate director, passive strategies, manager research, Europe, Morningstar

The first thing that I would highlight is that this launch is another example of how ETFs democratise access to fixed income. The bond market is huge and very diverse, but historically it has been difficult for most investors to access. 

Bond ETFs provide easy instant access, and this, in itself, is positive. Now, having easy access to a market does not mean that one has to invest in it, and this is where the merits of the proposition on offer must be debated.

The key question here is why a European investor would want to put money into US muni bonds and what role they could play in a portfolio.

Invesco highlighted a higher yield potential and better average credit quality relative to US investment grade corporate bonds, and this may well be the case at present.

Still, ultimately for a European investor, this would be something of niche international bond exposure with foreign exchange risk, and therefore, likely to play a small role in a portfolio. 

So, all in all, good to see another example of ETFs breaking down the access barriers to bond markets, but unsure as to whether US munis can have broad investor appeal this side of the Atlantic.

Henry Cobbe (pictured left), head of research, Elston Consulting

This new ETF is a neat way to access municipal bond market exposure. The timing is good as it provides a way to benefit from the fiscal stimulus of increased spending on infrastructure as local authorities “build back better”, even while monetary stimulus is depressing yields on nominal government and corporate bonds.

What is driving the increasing demand for fixed income ETFs?

Obviously, the muni market is entirely US, despite the UK putting in the foundations for its own UK muni bond creations in 2016. 

In the meantime, a sterling-hedged version of this product would be welcome further down the track.