A Targeted Bond ETF Strategy for a Rising Rate Environment

As the U.S. braces for a rising interest rate environment ahead, fixed-income investors may adopt a bond ladder strategy to hedge against the risks through maturity- or target-date exchange traded fund options.

ETF Trends publisher Tom Lydon spoke with Bill Belden, Head of Product Development & Management at Guggenheim Investments, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about defined-maturity ETFs to help diminish a fixed-income portfolio’s exposure to interest rate risk.

“We came out with BulletShares back in 2010,” Belden said. “These defined -maturity ETFs, which represent maturities ranging from 2017 to 2026, wed the best aspect of owning an individual bond with a bond fund.”

These 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. As such, investors are meant to buy-and-hold these securities until maturity.