It is a bond ETF that tracks an index of California municipal bonds not subject to the alternative minimum tax. It holds U.S. dollar-denominated, investment-grade tax-exempt bonds issued by the state of California and its agencies, and the holdings are determined by index rules that set a minimum credit rating.

It suits investors who have U.S. taxable income and can actually benefit from tax-exempt interest, and who are looking for an income-generating asset with lower volatility than stocks.

It is a passive (index-tracking) ETF managed by BlackRock iShares.

The fund broadly holds investment-grade tax-exempt municipal bonds issued by the California state government, local governments, and public agencies, in accordance with index rules. It excludes bonds subject to the alternative minimum tax to keep the after-tax return structure simple, and it diversifies by mixing bonds of different maturities and credit ratings.

• Concentrates on a single state, California, with a composition tailored to the state tax exemption requirements for residents of that state
• Has a relatively broad number of holdings among California municipal bond ETFs
• Holds only bonds not subject to the alternative minimum tax, which keeps after-tax calculations simple

Assets under management (AUM) are $5.4B, and the total expense ratio is 0.08% per year.

Trading volume is lower than for broad national municipal bond products, so it is advisable to check the bid-ask spread when trading. The fee is lower than the average for the broad tax-exempt bond category.

Municipal bond prices move in line with Treasury yields. The pattern has repeated in which the net asset value is pressured when rates rise and recovers when rates fall. Daily price swings are smaller than for equity products, but during periods of sharp rate changes, NAV adjustments are pronounced.

Funds that prioritize after-tax returns keep flowing steadily into the tax-exempt bond market, while short-term money leaves during rising-rate phases. Because this is a single-state product, supply and demand can also be shaken at times by news about the state government's finances and the volume of new issuance.

Tax-exempt interest and a low fee are its strengths, while single-state concentration and interest rate sensitivity are its weaknesses.

Broad products such as MUB and VTEB shown in the table hold municipal bonds from across the country, so regional risk is diversified and their assets under management are also larger. JMUB and CGMU have some active management characteristics, so their fee burden is relatively higher, and HYD also holds bonds rated below investment grade, which raises both risk and distribution levels. As alternatives outside California, you can also consider NYF, which invests in New York State municipal bonds, SUB, which has shortened maturities, and the national tax-exempt bond products TFI and PZA.

These are the points to review before investing in this ETF. Whether the tax-exempt benefit actually applies to you and where the interest rate cycle stands will determine performance. You should also look at California's fiscal situation and trading liquidity.

Rising interest rates and a deterioration in California's finances are the main risks. Because of the single-state concentration, the impact of regional issues is transmitted more directly than with nationally diversified products. For investors holding Korean won, exchange rate fluctuations also come into play.

This is a municipal bond product suited to investors who can actually make use of tax-exempt interest. If you want to reduce regional risk, we recommend comparing nationally diversified products such as MUB and VTEB, and if you want a higher distribution level, comparing HYD as well.