Target-Date Bond ETFs

Exchange traded fund sponsor iShares provides investors with a number of defined maturity-date bond options that help fixed-income investors manage interest rate risk, and one of the provider’s offerings is about to mature.

According to a press release, the iShares 2013 S&P AMT-Free Municipal Series ETF (NYSEArca: MUAB) will mature and cease trading at the close on August 15, 2013.

As the bond holdings mature, the ETF will shift into short-term, tax-exempt instruments and cash allocations. Shareholders who have held onto the fund will receive the entire amount of their proceeds in cash on or after August 21, 2013.

The other bond ETFs in the S&P AMT-Free Municipal Series have end dates ranging from 2014 to 2018. iShares is also expanding its line of target-date bond funds. [iShares and Guggenheim Prep ETFs for Rising Rates]

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. Consequently, investors can use target maturity ETFs to reduce interest rate risk in periods of rising rates because the funds do not roll maturities.

The target-date bonds also help investors implement a laddered bond strategy for multiple years of maturity – if interest rates rise, people can re-invest assets into higher yielding bonds once an ETF matures, reducing overall risk in the fixed-income portfolio. [Limit Interest Rate Exposure with Defined-Maturity Bond ETFs]