A suite of defined maturity bond ETFs that can provide cash flow, the flexibility to customize maturities and the transparency to know what you own. Jason Bloom, Senior Director of Global Macro ETF Strategy, explains the benefits of investing with BulletShares.
Well, BulletShares have several unique qualities but I think the two that really stand out are the breadth of investment exposures offered through the BulletShares structures. So, a BulletShares client can invest in investment grade corporates, high-yield, municipal bonds, and emerging market U.S. dollar denominated debt. That is a unique range of options that are in the market place. And then, BulletShares also take a unique approach to some of the nuance of those different asset classes. So for example, municipal bonds and high-yield bonds are often called away before final maturity. BulletShares take a unique and a very thoughtful approach to addressing that issue.
So when people talk about bond laddering, they really talking about a timeless investment strategy that involves buying a range of maturities. That is, to buy bonds that mature at a certain point in time and then buy bonds that mature farther out in time, hold those bonds to maturity, and then as those proceeds come back to the investor rolling them out so to speak and buying bonds with longer maturities. And so, you have laddered your bond maturity out in time and you manage that bond ladder naturally as time passes.
So when we think of comparing BulletShares to using individual bonds, there are really two primary benefits that come to mind. The first is diversification. So diversification in a fixed income portfolio is very important because bonds will only deliver the yield that they’re offering at the time of purchase. Whereas, equities can offer upside that can cushion the downside if a security under performs. So, diversification and bond portfolios tends to require a higher numbers of securities, but bonds of trade over the market are fairly cumbersome and time consuming to trade. So, BulletShares become a huge timesaver and add typically diversification to a bond laddering portfolio that would otherwise be using individual bonds. And then, the second benefit really comes down flexibility and scalability across a range of client accounts. Large clients and small clients can now achieve the exact same investment exposure at the exact same cost. And that, is something that’s very difficult to achieve using individual bonds.
So, BulletShares were actually invented for the purpose of making bond laddering easier. So bond laddering while a very simple strategy, is actually fairly complex in its execution. To build a diversified bond ladder, the investor needs to buy dozens if not hundreds bonds maturing over a range of dates out into the future. And so, the exercise of building that portfolio can take a large amount of time and it can take a lot of resources. And, it can sometimes be expensive if you don’t have an incredibly large sum to invest as you spread it across those bonds. So, BulletShares allow investors to get institutional level of liquidity in pricing, they allow the investor to build a diversified bond ladder across a range of years with just a few transitions in the exchange traded equity market.
So, BulletShares can really save time for advisors and it’s really pretty straightforward. With one BulletShares equity ticker that’s traded through the stock exchange, the advisor can access hundreds of bonds with a very precise maturity profile. And, if you think of what it takes an advisor to trade a hundred bonds on the phone in the over-the-counter market, you can see that there’s a massive efficiency there. So, having had the chance to work with BulletShares for over 10 years, one of the most memorable client feedback stories is a very early client who told me that they used to spend the first hour of every morning scouring bond inventories for clients and BulletShares gave them that hour back. They can now accomplish in five minutes what used to take them an hour. You spread that over the course of years and it becomes a really powerful tool for an advisor.
Well, having had the chance to work with BulletShares for 10 years now, I’ve seen advisors use them in a variety of different ways. But primarily, advisors are using them as a way to much more efficiently implement the bond laddering process across their entire book of clients. They may have been doing it for a few clients or maybe some of the larger client accounts, and now they can provide the same exposure to the biggest and the smallest clients with the same investment of time and energy. And then, the other way that advisors are using BulletShares is in combination with traditional mutual funds and ETFs to add a degree of precision to their portfolios. The BulletShares can be added or subtracted over time to very tightly control duration exposure, to very tightly control credit risk in the portfolio, and in some cases, to access the bond laddering strategy in certain securities that can’t be traded individually over-the-counter.
How to Build a Bond Ladder
Explore the simple strategy behind BulletShares® ETFs
Explore BulletShares® ETFs
Frequently asked questions about the bond strategy
What Happens as BulletShares® ETFs Approach Maturity?
Jason Bloom provides a look at the last year of a BulletShares ETF and explains potential options depending on your needs.