Bond focused exchange traded funds that have defined maturity, similar to an individual bond, are catching the interest of investors. The appeal of diversification mixed with the set maturity of a bond has benefits in the current market conditions.
“The ETFs were designed partly to be building blocks in a ‘laddered’ bond portfolio, where investors buy bonds with staggered maturity dates and hold them to maturity. Traditionally, laddering was done with individual bonds, but getting sufficient diversification can require an investment of $500,000 or more,” Daisy Maxey wrote for The WSJ.
Guggenheim Investments has the most popular line up of defined maturity ETFs, with about $1.6 billion invested in them. Asset growth in this sub-set of bond ETFs has not been impressive, but it is slow and steady. Similarly, BlackRock’s iShares line up offers defined maturity municipal bond ETFs that have around $220 million in assets.
But while the interest payment and face value of an individual bond are spelled out up front, the funds’ monthly distributions and payouts at maturity may fluctuate some. “It’s a little different structure” for investors to learn about, Timothy Strauts, a Morningstar ETF analyst said. [Fixed Income ETFs for Yield]