In comparison, diversified bond funds have no set maturity date and constantly sell holdings set to mature and buy longer dated bonds to achieve their target strategy. Consequently, these diversified bond funds come with duration risk where funds with longer durations could see prices significantly decline if interest rates were to rise.
However, the maturity-date ETFs may trade at a premium and show light volume, so investors should be aware they could overpay for the investments.
IBDC’s “average duration is 3.5 years, suggesting that its price would slump by 3.5 percent if rates were to rise by one percentage point. If you had to unload the ETF before its maturity date, you might take a loss,” according to Kiplinger’s.
The ETF has a 30-day SEC yield and charges just 0.1% per year, or $10 for every $10,000 invested.