Defined-Maturity ETFs

Investors have been using bond exchange traded funds more but rising interest rates remain a threat to performance. In response, some providers offer certain ETFs that will temper interest rate risk.

ETFs that mature the same way a bond does, returning the original investment at a set date in the future, are the latest focus in bond-like ETFs. These funds also payout an income stream. The defined maturity area of the ETF market is currently dominated by iShares and Guggenheim Investments. [iShares Launches Target-Date Corporate Bond ETFs to Hedge Rising Rates]

Last month iShares debuted 4 new ETFs that invest in corporate bonds and mature from 2013 through 2023. Guggenheim Investments has answered investor demand in this area of the market with their BulletShares line-up. Tom Lauricella for The WSJ reports that of these 14 ETFs, three have matured and $2.4 billion in assets remain under management. [Corporate Bond ETFs Target Specific Maturities] A glimpse at the iShares line-up:

  • SharesBond 2016 Investment Grade Corporate Bond ETF (NYSEArca: IBCB)
  • iSharesBond 2018 Investment Grade Corporate Bond ETF (NYSEArca: IBCC)
  • SharesBond 2020 Investment Grade Corporate Bond ETF (NYSEArca: IBCD)
  • iSharesBond 2023 Investment Grade Corporate Bond ETF (NYSEArca: IBCE)

“These help mitigate the interest-rate exposure [of traditional bond funds]if you are a buy-and-hold investor…and they really are being used by buy-and-hold investors,” says William Belden, head of product development at Guggenheim. Some of the Guggenheim offerings:

  • Guggenheim BulletShares 2014 Corporate Bond ETF(NYSEArca: BSCE)
  • Guggenheim BulletShares 2015 Corporate Bond ETF (NYSEArca: BSCF)
  • Guggenheim BulletShares 2016 High Yield Corporate Bond Fund (NYSEArca: BSJG)
  • Guggenheim BulletShares 2017 High Yield Corporate Bond ETF (NYSEArca: BSJH)

These types of ETFs typically buy bonds that mature in the year the fund will terminate, ensuring that investors can collect the bonds face value at maturity. A regular bond ETF has the risk of losing original principal if interest rates go up. [Advisors, Product Innovation to Drive ETF Growth]

Belden notes that iShares has not motioned that they will rally for market share, especially since their corporate bond offerings avoid bank debt and that of other financial institutions. In general, iShares aims their sales to financial companies, and banks do not like to own debt of other banks. There tends to be a lot of market share on the table as a result.

Going forward, both Guggenheim and iShares have plans to expand their ETF line-ups in the defined-maturity area of the market.

Tisha Guerrero 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.