Subtitles for Looking at Municipal Bonds as Part of Your Core

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welcome the financial advisor
channel at S&P Dow Jones today
I'm joined by lol and shes
investment analysts at the RIAA
and Robert Beiser betterment and
Karen should Onishi 6 income
strategist at Blackrock and our
own James are they are eager
he's the head of global fixed
income at S&P Dow Jones welcome
to be here today we want to talk
about unions to score so maybe
you can help us out in just
wanted to know like from
betterment standpoint how do you
view me is why would you
consider immunity to be within
the core so I so we like
meetings law and in particular
an ETS really fit with our
portfolio as you know but are
meant only invests in municipal
bond ETFs just like we only
invest in ETFs in general at a
very early stage of the business
we decided that ETFs will be the
only ownership structure and so
we view each have seen as a very
attractive investment in
particular community jobs if you
look at our our client base our
average client side the average
accounts about $26,000 course
there's a wide range there we
have no minimum balance and so
many chiefs of all those with as
you know small aur maza dollar
to enter into the municipal bond
market the average age work line
is around 36 and that again
stands from anywhere between
eighteen 297 so there's a wide
range and about a quarter of our
our clients are women so
the great thing about me chiapas
that they are so flexible you
can enter with very low a UN and
at the same time you can get
very broad exposure because of
the inherent you know broad
nature CTR ok so JRS ETFs are
tracking an index how does an
index deliver our core exposure
like the S&P 500 immunities and
what are some of the
characteristics that index the
index edged used by ETS is the
S&P national EMT free municipal
bond index which is a
rules-based index very much like
the S&P 500 equity index and
it's a great comparison it's
rules-based it tracks the larger
issue arose within the municipal
bond market it's intentionally
diversified as diversification
criteria and it eliminates a lot
of noise decibels are any longer
I homogeneous market and this
this indexed by rule eliminates
the sectors that create the
noise for example its investment
grade only so issuers like
Puerto Rico are no longer in the
index is not as those bonds
don't qualify because of their
radios or below investment grade
sectors are excluded the noise
sectors the boys he wants the
multi families is the nursing
homes ICRC's
quarterback municipal bonds the
bonds are subject to alternative
minimum tax or AMT all excluded
from a place to create a lot of
noise in the bond market the
result the S&P national
municipal bond index is a plain
vanilla basket in a small box
just the way mom-and-pop think
about the missile bond market
got New York City GEOS New York
california jails
the county jails and essential
purpose revenue bonds like water
and sewer and airports and power
box those types of us so Karen
the index has a lot in it how
does an asset manager like
Blackrock track that index with
the ETF and what are some of the
characteristics of that ETF
chart whenever you're creating
an index tracking portfolio
fixed-income you doing very well
he can't go out the source every
single bond right away so when
you take a look at the index and
has about 10,000 municipal bonds
and then it would be very
difficult to go out and buy all
those on day one so we do is we
take the index and we divided up
into its relevant risk
characteristics do you think
about all the different sectors
different credit qualities
whether its revenue bonds were
CG Obama we're gonna make sure
that the bonds that are fun or
gonna have the same average
characteristics as the index but
the same distribution those
characteristics that we're
delivering an ETF that has the
same returns the index and LA
from your standpoint as a
practitioner what
characteristics of ETF really
appeal to you it better men are
so determined as a company we're
very much a we make decisions
that are you know rigorous
empirical and evidence-based and
it's a philosophy that really
trickles down at every single
level the company when it comes
to the core qualities that we
look for in an ETF in particular
they are custom expected returns
over the long term after
adjusting for taxes and also
fees are also low cost high
liquidity and then passive our
index tracking and so we have a
proprietary scoring method that
we like to call the tacos for
just a total average cost of
owning a need to you at where we
take into account expenses such
as expense ratio as well as but
I spread and we had a calibrated
based on how frequently those
costs are incurred so in our
portfolio right now move into fi
movie I mean be really scored
well on every single one of
those dimensions you know if you
look at the expense ratio is 25
digs the task force fell five so
he really has a very low cost
attached to it and that's why we
like it very much
and we are the biggest holder of
a maybe rights you can be in it
and some size and then so size
would be bored as well yeah I
think so
of the final UT of Kennedy's we
looked at only I'm you be
identified had sufficient aum
and their bid ask spread were
somewhat low for their asset
class and that's why we chose
them for portfolio yeah so Jared
we we talked about the news like
what what shows up in the news
about mutinies lot of talk about
Puerto Rico's talk about Chicago
Detroit are we gonna find those
exposures in something like the
national EMT pretty well as a
big national empty phrase
investment grade index by rule
so the bonds rated by Moody's
S&P or Fitch and it's not rated
investment grade by one of those
three it doesn't stay in the
index it's moved our index or
doesn't qualify to be indexed to
begin with so put a rico not in
the attacks let you know that
all Puerto Rico downgraded below
investment grade monitor
defaults as we exited the summer
it's it's quite a mess
chicago is still has a pockets
of investment grade but a lot of
certain issuers have been moved
below investment grade not in a
subpoena national Illinois still
in the induction I still
investment-grade I would throw
new jersey just because I just
to give you a little tweak New
Jersey is a second worst
performing state you today
following for eco it's a pretty
powerful statement but really
not performing that badly it's
just a statistical number but
political bodies have a high
quality in general and we lose
in that news and headlines of
Puerto Rico and the chicago
schools and Scott on a battle I
pensions we lose that foundation
the foundation is very high
quality nature of mister bonds
and general much better quality
in aggregate an investment-grade
corporates right that's a great
carrying Blackrock is providing
both active and passive
solutions in the Munich space
with with the number of those
solutions increasing are you see
an advisor behavior change at
all in terms of how they use
solutions in the meeting space
that's right so we're seeing a
lot of advisers who in the past
had two options available to
them they could only investment
active mutual fund it had to go
out and buy individual bonds
themselves I think the ETF has
now become a tool they can use
to kind of bridge those two
exposures if you're looking to
maybe minimize exposure to an
underperforming active manager
the index ETFs can really help
fill a gap there if you're
having trouble building bomb
plotters having trouble sorting
papers saying fully invested we
now have a series of term
maturity tsri bond ETFs can help
fill in that gap to know
advisors have a range of tools
at their disposal depending on
their goals to really get
exposure in the right way for
their clients
thank you all very much three
views today thanks for joining
us talking about me and for
those of you who would like to
learn more about how indexing
works within municipal bonds
please go to our website that's
WWW dot SPDT I dot com and would
like to point out we just
recorded webinar on Unidisc or
you can access that on our
content on our website and
finally if you're interested in
joining us in our community
forum that will be held in
Manhattan on October 28 again on
a Web site more details in terms
of how you can join us for free
at four thanks and have a great

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Why should munis be part of your core portfolio? Watch industry experts from BlackRock, Betterment, and S&P Dow Jones Indices tackle that question.