BulletShares ETFs: Unique Products Explained
July 4th, 2010 at 1:00pm by Tom Lydon
The recently launched BulletShares suite of maturity-target-date investment-grade corporate bond exchange traded funds (ETFs) offer a more targeted exposure to the corporate bond market in an increasingly changing fixed-income market. The suite of ETFs allow for highly individualized investment strategies.
In an interview with Jonathan Liss for Yahoo! Finance, Steven A. Baffico, Senior Managing Director at Guggenheim Partners – Claymore Securities and head of U.S. Retail Distribution for the firm, and Darrin DeCosta, Head of Product Development for Accretive Asset management LLC, talked about Claymore’s recently launched BulletShares suite of maturity-date corporate bond ETFs. [7 New Claymore Maturity-Date Corporate Bond ETFs.]
High-net worth individuals generally preferred individual bonds over packaged bond products. The funds weren’t sufficiently target-date/life-cycle driven for those investors’ purposes, remarks DeCosta. The BulletShares suite offers sufficient cash flow, addresses date-specific lifestyle issues and provides diversification in bonds. [Corporate Bond ETF Interest Generates Cash.]
The ETF undergoes a “sampling” strategy in which bonds from the underlying index include at least one “BBB” rating from at least one rating agency, which they define as “investment grade,” but most of the securities have multiple ratings of “BBB” or higher. Each ETF will hold a group of 30 to 40 securities, and the number may expand over time. It should be noted that the suite of ETFs have a large proportion of holdings in the financial sector.
By the near end of the BulletShares yield curve, investors may see monthly pay outs on a 12-month yield of 100 basis points. For the far end of the yield curve, 12-month yields may go between high 300s to low 400s basis points, says Baffico. A corporate bond issuance usually holds a duration of 5 or 10 years. [Corporate Bond ETFs Back in Favor.]
As compared to other well-established corporate bond ETFs, BulletShares ETFs have extremely low turnovers since they were designed to hold securities to maturity. Other corporate bond ETFs undergo turnovers from rebalancing and creation/redemption processes, which may increase the tracking error.
For more information on corporate bond ETFs, visit our corporate bonds category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.