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State Street launches VRDO Municipal Bond ETF

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State Street Global Advisors, the investment management arm of State Street Corporation, has launched the SPDR S&P VRDO Municipal Bond ETF on the NYSE Arca.

The ETF is designed to provide investors with access to municipal variable rate demand obligations (VRDOs), an asset class offering attractive yields and stable income that is exempt from federal taxes and often state and local income taxes as well.

Specifically, it seeks to track the price and yield performance of the S&P National AMT-Free Municipal VRDO Index. As of 21 September 2009, the index, which includes VRDOs issued by US states, local governments, or agencies, provides exposure to more than 377 issues.

VRDOs, which are often issued with maturities of up to 30 or 40 years, are considered short-term instruments because they have a one-day or seven-day put feature that coincides with the timing of the daily or weekly yield reset.

“Developed in response to increasing demand for VRDOs, the SPDR S&P VRDO Municipal Bond ETF provides investors with access to a hard to reach corner of the municipal bond market where the required minimum denomination for issue purchase is USD100,000,” says James Ross, senior managing director at State Street Global Advisors. “In offering precise, cost efficient exposure to VRDOs, the SPDR S&P VRDO Municipal Bond ETF provides a wide range of investors with an opportunity to enhance the diversification and tax efficiency of their portfolios.”

According to Standard & Poor’s research, the number of VRDO issues brought to market increased 32 per cent in 2008.

The fund’s annual expense ratio is 0.20 per cent.

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