IShares municipal bond fund tracking error

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IShares municipal bond fund tracking error measures Blackrock ishares indexing performance. Tracking error is the ultimate measure of judging an index fund manager's performance.

Since bond indexes can include huge numbers of illiquid bonds, replicating an index is often very costly. iShares®, in an attempt to control costs, samples securities in their bond index funds. The sampling attempts to match the sector and risk metrics of the underlying bonds in the index. Because a sampled index fund does not hold all of the securities in the underlying index, its returns may vary somewhat from those of the index. Such performance variance is termed "sampling error." iShares funds include two broad nationally based exchange traded (ETF) municipal bond funds structured across two bond maturity levels: short and long term bonds. In addition to these two portfolios, iShares manages state specific municipal ETFs and fixed target date municipal ETFs. [note 1]

The municipal bond market

The municipal bond market is a very large market, with many illiquid securities. The following table shows the number of securities held by the funds and by municipal bond benchmark indices. The comparative indices include the S&P Short Term National AMT-Free Municipal Bond Index and the S&P National AMT-Free Municipal Bond Index.

Table 1. Municipal Bond Market
Fund Date Fund securities Comparative index securities [1][2]
iShares Short-Term National Muni Bond ETF [3] 12/04/2017 870 3,366
iShares National Muni Bond ETF[4] 12/04/2017 3,379 11,873

Tracking error

See also: Vanguard municipal funds vs. municipal bond etfs

The following table provides the tracking errors for the iShares ETFs. Tracking errors reflect both the net asset value and market price returns. The values do not include any purchase or sale transaction costs borne by the investor. In the short performance history of the funds, net asset value return tracking error has been slightly higher than the 0.25% average expense ratio; market price tracking error has been marginally higher. Detailed annual tracking error data, along with additional statistical measurement of fund returns, are provided in the footnote tables.

Table 2. iShares® Municipal Bond Fund Tracking Errors (compound annual returns)
Fund NAV return Market price return
Year Tracking Error Year Tracking Error
iShares Short-Term National Muni Bond ETF [note 2]
2009-2016 -0.24% 2009-2016 -0.27%
iShares National Muni Bond ETF [note 3]
2008-2016 -0.20% 2008-2016 -0.26%

Notes

  1. Additional Municipal Bond Funds:
    • iBonds® Sep 2018 Term Muni Bond ETF
    • iBonds® Sep 2019 Term Muni Bond ETF
    • iBonds® Sep 2020 Term Muni Bond ETF
    • iBonds® Dec 2021 Term Muni Bond ETF
    • iBonds® Dec 2022 Term Muni Bond ETF
    • iShares California Muni Bond ETF
    • iShares New York Muni Bond ETF
  2. All return data is derived from the I shares website, individual fund pages:
    iShares Short-Term National Muni Bond ETF

    (View Google Spreadsheet in browser, then File --> Download as to download the file.)

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  3. Table 4.
    iShares National Muni Bond ETF

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References

External links