iShares and Guggenheim Prep ETFs for Rising Rates
June 6th 2013 at 4:10pm by Tom Lydon
While most investors and advisors are curtailing their exposure to fixed-income assets, some exchange traded fund providers plan to expand their bonds lineup, but doing so with rising interest rates in mind.
BlackRock’s iShares is planning on increasing the number of its iSharesBond target-maturity ETFs, and Guggenheim Investments is working on expanding its line of BulletShares target-maturity corporate and high-yield ETFs, reports Jackie Noblett for Ignites.
According to an SEC filing, iShares is working on the iSharesBond 2023 Corporate Term ETF (NYSEArca: IBDD), which will hold U.S. dollar-denominated, investment grade corporate bonds that mature after March 31, 2022 and before April 1, 2023.
iShares has a suite of target maturity municipal bond ETFs for each year from 2013 to 2018, and the firm recently launched corporate bonds target maturity bond ETFs that exclude the financial sector for the years 2016, 2018, 2020 and 2023.
According to an SEC filing, Guggenheim is also working on expanding its line with the Guggenheim BulletShares 2022 Corporate Bond ETF (NYSEArca: BSCM), Guggenheim BulletShares 2023 Corporate Bond ETF (NYSEArca: BSCN), Guggenheim BulletShares 2024 Corporate Bond ETF (NYSEArca: BSCP) and Guggenheim BulletShares 2025 Corporate Bond ETF (NYSEArca: BSCQ).
Guggenheim currently offers a range of target-date investment-grade corporate bonds for each year from 2013 to 2020 and high-yield bonds for each year from 2013 to 2018.
Target maturity bond ETFs distribute payments throughout the life of the fund, track a group of bonds that are expected to mature in a given year, collect on the bonds’ face value at maturity and pass the cash on to investors, similar to holding an individual bond to maturity. [Limit Interest Rate Exposure with Defined-Maturity Bond ETFs]
“The new generation of advisors using fixed-income ETFs are bond buyers,” Daniel Gamba, head of iShares Americas institutional at BlackRock, said in the article. “What they wanted is a security or a fixed-income ETF that behaved more like a bond, in a sense that they wanted an instrument that provided them with income but that had a fixed maturity.”
Consequently, investors can use target maturity ETFs to reduce interest rate risk in periods of rising rates because the funds do not roll maturities.
In comparison, other types of fixed-income, or aggregate bond, ETFs hold varying bond securities with different maturities, and they do not liquidate holdings to return cash back to investors upon maturity.
According to a Casey, Quirk & Associates white paper, around $1 trillion in traditional fixed-income assets, including core bond, government and benchmark-oriented strategies, will shift over to debt strategies designed to protect against inflation and rising rates.
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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.