Invesco, the fourth-largest U.S. exchange traded funds issuer, via its BulletShares suite, is also one of the largest issuers of defined maturity ETFs.
Also known as target maturity funds, defined maturity ETFs only hold bonds that mature in a set year and distributes cash back to investors upon maturity. With target-maturity bond ETFs, investors can implement a type of bond ladder strategy that has evenly spaced out maturity dates to help minimize interest rate risk. Essentially, target-date bonds appeal to buy-and-hold investors who want a steady stream of income without the risk of losing their initial principal.
The BulletShares ETF suite tries to combine the advantages of ETF investing with the benefits of individual debt exposure, including the potential ability to match income with future cash-flow needs. The BulletShares ETFs are designed to offer income-seeking investors an easily accessible means of building or managing a laddered income stream.
“Investors who hold a bond to maturity have locked in their total return, subject mainly to the risk of default. Now, they must consider how to mitigate that default risk: How many different bonds should they own to diversify their portfolios against an economic downturn that weighs on companies’ ability to repay their debts?,” said Invesco in a recent note.
Defined Maturity Benefits
While financial advisors and investors have implemented this strategy through individual debt securities, crafting bond ladders with individual bonds can be time consuming and cost prohibitive. Alternatively, investors can utilize target-date bond ETFs to easily create a bond ladder strategy.