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State Street and Nuveen launch Build America Bond ETF

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State Street Global Advisors has launched the SPDR Nuveen Barclays Capital Build America Bond ETF on NYSE Arca.

The municipal bond SPDR is the first exchange-traded fund developed under a sub-advisory agreement between State Street Global Advisors and Nuveen Investments subsidiary, Nuveen Asset Management.

Its annual expense ratio is 0.35 per cent.

Designed to provide investors with exposure to build America bonds, which can offer an attractive risk/reward potential when compared with equivalently rated corporate debt, the ETF seeks to track the performance of the Barclays Capital Build America Bond Index. As of 30 April 2010, the index provides exposure to 85 issues.

“Build America bonds are a relatively new asset class; however, as investors and advisors have grown more familiar with these bonds, demand for diversified access to this segment of the municipal bond market has increased substantially,” says Anthony Rochte (pictured), senior managing director at State Street Global Advisors. “The first municipal bond ETF developed under our agreement with Nuveen, the SPDR Nuveen Barclays Capital Build America Bond ETF underscores our commitment to offering cutting-edge products that provide investors with precise exposure to hard-to-reach corners of the market.”

Created under the American Recovery and Reinvestment Act of 2009, build America bonds were designed to appeal to a broader set of investors than traditional tax-exempt municipal bonds and reduce the borrowing costs of state and local governments. The interest from the bonds is subsidized by the US Treasury.

Unlike most municipal bonds, build America bonds are taxable; however, yields presently are comparable to corporate bonds, which historically have had a higher default rate than municipal bonds.

Between the launch of the programme in April 2009 and 31 March 2010, there have been 1,066 separate build America bond issues, which have supported more than USD90bn of municipal financing.

“Build America bonds continue to attract investors seeking to diversify their fixed income portfolios,” says Bill Huffman, chief operating officer and co-head of Nuveen Asset Management. “With the launch of the SPDR Nuveen Barclays Capital Build America Bond ETF, we look forward to working with State Street to help these investors access this unique asset class which helps finance essential service infrastructure projects across the US.”

On 30 March 2010, State Street Global Advisors announced that it entered into an agreement with Nuveen Investments, a provider of investment services to institutions and high-net-worth investors, under which Nuveen became sub-adviser of SSgA’s municipal bond ETFs.

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