Conservative investors who opt to eschew high-flying investment themes may find target maturity bond exchange traded funds a good option to hedge volatility in their fixed-income portfolio.
With interest rates set to rise as the Fed winds down its bond purchasing program and plans to hike rates to rein in inflation, a bond laddering strategy will help a fixed-income portfolio
Defined-maturity bond funds typically buy bonds that mature in the year the ETF will terminate, ensuring that investors can collect the bonds’ face value at maturity, along with a steady income stream along the way. Investors are meant to buy-and-hold these securities until maturity. In contrast, a regular bond ETF runs the risk of losing its original principal if interest rates go up, depending on the bond ETF’s effective duration.
For instance, Guggenheim Investments has a suite of “BulletShares” defined-maturity bond ETFs, including a range of corporate bond options for years up to the Guggenheim BulletShares 2024 Corporate Bond ETF (NYSEArca: BSCO) and a group of high-yield options for years up to the Guggenheim BulletShares 2022 High Yield Corporate Bond ETF (NYSEArca: BSJM).
Additionally, BlackRock’s iShares also offers a suite of target-date corporate and muni bond ETFs that mature up to the iShares iBonds Sep 2020 AMT-Free Muni Bond ETF (NYSEArca: IBMI), iShares iBonds Mar 2023 Corporate ETF (NYSEArca: IBDD) and iShares iBonds Mar 2023 Corporate ex-Financials ETF (NYSEArca: IBCE). The ETF provider recently announced that it is shuttering its broader Target Date ETF line on October 15. [iShares Will Close 18 ETFs]
CFP professional Peter Lazaroff, CFA, portfolio manager at Acropolis Investment Management, argues that these types of investments are very useful for “targeting specific points in the yield curve in particular,” reports Sheyna Steiner for Bankrate.