Investors can tailor their exposure to corporate debt with specialized bond ETFs. Defined-maturity ETFs can help investors customize their fixed-income portfolios.
“Defined-maturity ETFs have been embraced by advisors who are building laddered portfolios, require income to support their client’s life-style, or are seeking to meet certain client’s life goal needs,” Guggenheim Investments Managing Director, Portfolio Strategist Tony Davidow, said in an interview. [A Guide to Target-Date ETFs]
For instance, the defined-maturity ETFs provide predictable income through monthly distributions. Additionally, upon maturity, the investors would receive principal.
“Defined-maturity ETFs are ideal tools for laddering bond portfolios,” Davidow said. “Because of the finite maturities, advisors can use multiple defined maturity ETFs to spread their risk, and stagger their maturities.”
Given today’s historical low yield rates, long-term investors have to be wary about potential interest rate risks in the future.
“One of the advantages to defined-maturity ETFs in a changing rate environment is the ability for an advisor to manage their client’s duration risk,” Davidow added. “If the advisor believes that rates will rise after 2015, and wants to limit their exposure, they can purchase the 2015 BulletShares.”
Davidow also points out that bond funds have a “perpetual” duration and will likely need to extend maturities over time.
Investors who are interested in the “laddered” bond ETF approach may consider the line of BulletShares target-date corporate bond ETFs, as these types of defined-maturity funds are effective tools in managing duration risk – the sensitivity of the price to changes in interest rates, so rising rates would translate to falling bond prices. The ETFs include:
- Guggenheim BulletShares 2012 Corporate Bond ETF (BSCC)
- Guggenheim BulletShares 2013 Corporate Bond ETF (BSCD)
- Guggenheim BulletShares 2014 Corporate Bond ETF(BSCE)
- Guggenheim BulletShares 2015 Corporate Bond ETF (BSCF)
- Guggenheim BulletShares 2016 Corporate Bond ETF (BSCG)
- Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH)
- Guggenheim BulletShares 2018 Corporate Bond ETF (BSCI)
- Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ)
- Guggenheim BulletShares 2020 Corporate Bond ETF (BSCK)
In addition, investors can look at high-yield corporate debt ETF options available:
- Guggenheim BulletShares 2012 High Yield Corporate Bond ETF (BSJC)
- Guggenheim BulletShares 2013 High Yield Corporate Bond ETF (BSJD)
- Guggenheim BulletShares 2014 High Yield Corporate Bond ETF (BSJE)
- Guggenheim BulletShares 2015 High Yield Corporate Bond ETF (BSJF)
- Guggenheim BulletShares 2016 High Yield Corporate Bond Fund (BSJG)
- Guggenheim BulletShares 2017 High Yield Corporate Bond ETF (BSJH)
- Guggenheim BulletShares 2018 Corporate Bond ETF (BSJI)
For more information on target-date funds, visit our target-date ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.