Get Short-Term Municipal Bond Exposure in 2021 with “BSML”

Blue wave or red wave, it’s important to get bond exposure to offset equities in a portfolio, especially with market forces still tilting on the side of uncertainty. As far as where to look for special opportunities in the bond market, municipal bonds are worth a look to capitalize on short-term movements following a presidential election with the Invesco BulletShares® 2021 Municipal Bond ETF (BSML).

Municipal bonds give investors exposure to a bond market that historically has low default rates. While a company can fold, local government typically won’t so the safety of investing in debt paid for by taxpayers adds that extra layer of assurance.

As for BSML, the fund is based on the Invesco BulletShares® USD Municipal Bond 2021 Index. The Fund will invest at least 80% of its total assets in municipal bonds that comprise the index. The Index seeks to measure the performance of a portfolio of US dollar-denominated, issued by US state, state agencies, or local governments with effective maturities in 2021.

The Fund does not purchase all of the securities in the Index; instead, the Fund utilizes a “sampling” methodology to seek to achieve its investment objective. The Fund and the Index are rebalanced monthly. The Fund has a designated year of maturity of 2021 and will terminate on or about Dec. 15, 2021. See the prospectus for more information.

BSML Chart

Getting short-term bond exposure with a maturity date of 2021 also allows BSML investors to limit their duration risk. By limiting duration risk, investors are less exposed to the fluctuations of the bond market, which were doused with heavy doses of volatility during 2020.

Furthermore, regardless of the administration in 2021, infrastructure will be a priority as local governments look to recover from the COVID-19 pandemic. This should benefit municipal bonds as governments re-invest in their communities, such as infrastructure.

BSML also gives investors exposure to the highest quality credit ratings. Based on the fund’s website as of November 4, the majority of the fund’s portfolio consists of debt with AAA or AA credit ratings.

That said, if quality of credit is a concern when investing in a bond fund, BSML gives investors that peace of mind. As mentioned, government debt has a low probability of defaulting so the fund is perfect for investors who are risk averse.

BSML also works well for bond laddering since the BulletShares suite offers a variety of maturity dates that allow for a laddering strategy. Click here to learn more about how bond laddering works.

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