First ETF of closed-end municipal bond funds will allow investors to access the largest corner of the closed-end fund universe in a liquid, transparent way..…
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New York-based asset manager Van Eck Global announced that it has launched Market Vectors CEF Municipal Income ETF (NYSE Arca: XMPT), the first exchange-traded fund (ETF) to specifically focus on closed-end municipal bond funds, which make up the largest component of the closed-end fund (CEF) universe.
XMPT is intended to track, before fees and expenses, the performance of the S-Network Municipal Bond Closed-End Fund Index℠ (CEFMX), an index composed of shares of municipal bond closed-end funds listed in the United States that are principally engaged in asset management processes designed to produce federally tax-exempt annual yield. The index had 88 constituents as of June 30, 2011, divided amongst four main sectors: leveraged municipal fixed-income CEFs (which made up 84.4 percent of the index’s constituents); unleveraged municipal fixed-income CEFs (8.85 percent); leveraged high-yield municipal fixed income CEFs (3.83 percent); and unleveraged high-yield municipal fixed-income CEFs (2.92 percent). The index methodology assigns a greater weight to closed-end funds trading at discounts, potentially enhancing yield and providing the opportunity for capital appreciation.
“Investors and their advisors have long been attracted to tax-exempt closed-end funds which can offer attractive yields and, in some cases, sell at a discount to the underlying value of the portfolio assets,” said Jan van Eck, Principal at Van Eck Global. “XMPT’s index is well-diversified by credit, strategy and manager, focusing on higher quality assets, and designed to take advantage of closed-end funds’ tendency to trade at a discount. In the past, investors have long had to weigh these factors for themselves when investing in closed-end funds. Now, it is possible to build a diversified, highly liquid position in multiple CEFs by owning shares in a single ETF.”
Mr. van Eck also noted that the ability of a fund of bond funds, such as XMPT, to pass through tax exempt income from its holdings is a relatively new development, only becoming law as of December 22, 2010.
“As an ETF, XMPT is unique in the way it allows for access to tax exempt income and in the way it provides passive access to the world of active municipal bond management,” said James Colby, Senior Municipal Strategist with Van Eck Global. “And its ease of use and attractive yields should serve to make this a useful tool for investors looking to add a diversified source of exposure to the closed-end municipal bond fund universe.”
XMPT carries a gross expense ratio of 1.57 percent and a net expense ratio of 1.43 percent, and the expenses (excluding interest expense, offering costs, trading expenses, taxes, extraordinary expenses and acquired fund fees and expenses) are capped contractually until September 1, 2012 at 0.40 percent. The Fund expects to distribute a monthly dividend that, if properly reported as exempt-interest dividends, may not be subject to regular U.S. federal income tax. As of June 30, 2011, CEFMX had a distribution yield of 6.71 percent.
XMPT is Van Eck’s 35th Market Vectors ETF and is the ninth fund to join its family of fixed-income ETFs, which span municipal, international and corporate bond categories — LatAm Aggregate Bond ETF (BONO), Emerging Markets Local Currency Bond ETF (EMLC), High-Yield Municipal Index ETF (HYD), Intermediate Municipal Index ETF (ITM), Long Municipal Index ETF (MLN), Pre-Refunded Municipal Index ETF (PRB), Short Municipal Index ETF (SMB) and Market Vectors Investment Grade Floating Rate ETF (FLTR)
Source: ETFWorld – Nyse Arca
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