Van Eck offers ETF to track Barclays' municipal pre-refunded index

By Devika Patel

Knoxville, Tenn., Feb. 3 - Van Eck Global said in a press release that it has launched Vectors Pre-Refunded Municipal Index ETF, the nation's first ETF to focus on the pre-refunded segment of the municipal bond market.

The index seeks to replicate as closely as possible the price and yield performance of the Barclays Capital Municipal Pre-Refunded - Treasury-Escrowed Index. The fund's total net expenses are 0.24%.

Pre-refunded munis are bonds that have been refinanced by their issuers and remain outstanding in the municipal market.

The principal and interest of the bonds that make up LMPETR, the index underlying the fund, are secured by Treasury obligations backed by the full faith and credit of the U.S. government.

Those obligations include U.S. Treasuries as well as state and local government series bonds, or SLGs, which are Treasuries issued specifically for escrow use by municipal issuers. As of Dec. 31, the index had an average maturity of 4.11 years.

Pre-refunded munis backed by Treasuries and SLGs have provided high levels of liquidity due to their AAA equivalent credit quality, even during times of market distress such as these, and their interest rate risk is mitigated by their relatively short maturities. They also typically provide higher yields than Treasuries on a taxable-equivalent basis, and have historically produced attractive returns, as the table below demonstrates.

"We are pleased to lead the way in providing a convenient and cost-effective means of accessing the highest-quality and most liquid segment of the municipal bond market," Van Eck Global principal Jan van Eck said in the release.

"Pre-refunded bonds, given their high credit quality, liquidity and relatively low levels of price volatility, can truly be called munis for the risk averse. Their attractive taxable-equivalent yields and historical returns add to their appeal. PRB is a unique product that is well-suited to meeting investors' needs in today's difficult environment."

Van Eck is a money manager in New York.

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