IShares Short-Term National Municipal Bond ETF SUB offers a broad portfolio of short-term tax-exempt bonds at an affordable price tag. 

The fund tracks the ICE Short Maturity AMT-Free US National Municipal Index, which sweeps in tax-exempt municipal bonds with between one month and five years remaining to maturity. Eligible issues must have a minimum amount outstanding of $5 million and be part of a deal with a minimum original size of $50 million. These liquidity thresholds are not excessively restrictive and will allow the fund to capture a large portion of the short-term tax-exempt market. 

The index weights selected bonds by their market value, subject to issuer-level thresholds to promote diversification. The fund’s composition reflects issuance activities in this space, which concentrates in California, New York, and Texas. The fund parks around one third of its assets in issuers from these states, tilting its portfolio toward the most liquid corners of the fragmented muni market. The resulting portfolio enjoys ample liquidity while representing the opportunities available to active managers. 

The index excludes variable-rate securities and certain riskier sectors such as hospital, housing, and tobacco, as well as bonds issued by U.S. territories. This pulls its assets toward general-obligation bonds. The higher credit ratings on these securities lend the fund a quality tilt compared with its Morningstar Category peers. The fund often allocates the majority of its assets to bonds rated AA and above, a heavy overweighting relative to its category average. This helps smooth out its returns during credit shocks compared with more credit-heavy peers. Between March and June 2022, for instance, the fund outpaced its category average by 68 basis points as credit spreads widened on news about the Russia-Ukraine conflict.

The fund also tends to take on slightly less duration risk than its peers, which has provided an edge during interest-rate shocks. As of December 2023, the fund’s average duration stood at 1.9 years. This muted credit and duration risk profile might put the fund at a disadvantage during risk-on environments. Nonetheless, the fund’s razor-thin fee should help maintain its outperformance over category peers over the long run.

Analyst Rating

A sensibly constructed option for short-term tax-exempt income.

Analyst

Lan Anh Tran

The fund offers straightforward exposure to short-term muni bonds with its broad portfolio. It earns an Above Average Process rating.

Above Average

Process

BlackRock boasts a large and experienced team reinforced by sector specialists, supporting personnel, and centralized trading desks, which mitigates key-person risk and underpins an Above Average People rating.

Portfolio management is a team effort at BlackRock, so the named managers interact with a wider team of traders and managers to execute the fund’s day-to-day operations. A separate index analytics team researches and helps prepare for corporate actions and index changes. Most of the portfolio management process is automated as BlackRock’s Aladdin platform and its optimization algorithm fulfills much of the portfolio management tasks. Portfolio managers focus on keeping portfolio statistics within tight tracking targets, using discretion when there’s an opportunity for added value. BlackRock’s risk team works continuously with the managers to address rising challenges and improve processes, in addition to conducting regular formal reviews.

James Mauro and Karen Uyehara oversee the broad team of fixed-income managers responsible for North American iShares index funds. Mauro joined BlackRock in 2010 from State Street, while Uyehara came from Western Asset the same year.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

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