New ETF to Track Economic Recovery

Today, with instruments such as the iShares S&P California AMT-Free Municipal Bond Fund (CMF - commentary - Trade Now), the iShares S&P New York AMT-Free Municipal Bond Fund (NYF - commentary - Trade Now) and the iShares S&P National AMT-Free Municipal Bond Fund (MUB - commentary - Trade Now), investors can easily gain exposure to the municipal bond markets.

However, on Tuesday, PowerShares will launch its first and only ETF listing in 2009, which will expand investors' fixed-income options even further. This fund will be the first ETF designed to track the performance of the taxable municipal bonds issued through the American Recovery and Reinvestment Act of 2009.

The PowerShares Build America Bonds Portfolio Fund (BAB) will track the Bank of America Merrill Lynch Build America Bond Index. This index tracks about 1,800 investment-grade issues which, through an optimization strategy, will be sampled for the actual holdings. BAB will carry a 0.28% expense ratio.

Originally, the Build America Bond program was slated to wrap at the end of 2010. Seeing this looming expiration date, investors may be wary of holding this fund for the long term, fearing a shift in portfolio composition. PowerShares, however, appears have set up a plan to ensure that this instrument performs properly for years to come. According to IndexUniverse, as the BABs in the index reach maturity, they will slowly be converted into other taxable munis.

This plan may not be needed, however, as many are confident that the program will be extended or even made permanent.

Though it has yet to prove its efficacy, this fund may be a great choice for investors looking for direct exposure to the U.S.' economic recovery.

At the time of publication, Dion had no positions in securities mentioned.

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Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.