Investors can use defined maturity ETFs to build bond ladders that can help provide some stability regardless of where rates move.
Bond ladders may contain ETFs with various maturity dates, which boosts portfolio diversification. They also provide flexibility because proceeds at maturity can be reinvested or used to cover an expense.
Use our interactive tool to research and build bond ladders with BulletShares ETFs.
Bond investors have endured a whipsaw environment in interest rates that has introduced more unwanted volatility to portfolios. And with continued uncertainty over Federal Reserve rate policy, inflation, and a potential recession, fixed-income investors are looking for stability.
Therefore, it’s no surprise we’ve seen renewed interest in defined maturity ETFs and how they can be used to build efficient bond ladders.
Defined maturity ETFs can be used to build bond ladders designed to help create income stability regardless of the direction of interest rates.
Bond ladders are portfolios of bonds with sequential maturity dates. As bonds reach maturity, the proceeds can be used to fund a specific expense, such as a college tuition payment or tax bill, or reinvested in new bonds with longer maturities.
Bond ladders that hold bonds to maturity may be particularly appealing to investors looking for some income predictability in volatile interest rate environments.
First, ladders can be customized to target specific maturity and duration profiles, giving investors more control over the portfolio’s sensitivity to changes in interest rates. Most traditional fixed income mutual funds and ETFs typically have a perpetual duration target, making them more sensitive to changes in interest rates.
With bond ladders, when interest rates are rising, investors reinvest any proceeds from bonds maturing from the ladder into new bonds with higher rates. Meanwhile, if rates fall, investors can choose to reinvest less of the maturity proceeds into new bonds with lower rates. And when rates are falling, investors may have the benefit of existing bonds that were potentially purchased at higher rates than currently.
BulletShares defined maturity ETFs can help investors build bond ladders more efficiently because they combine the potential benefits of individual bonds and exchange-traded funds. BulletShares ETFs let investors avoid the trading costs, research, and time of building bond ladders with hundreds of individual bonds.
Defined maturity ETFs like BulletShares have termination dates like individual bonds and they also combine the advantages of ETFs such as diversification1, liquidity 2, and transparency.3
BulletShares ETFs provide targeted exposure to investment-grade bonds, high-yield corporate bonds, and municipal bonds.
You can use our interactive tool to learn how to build customized bond ladders with BulletShares ETFs with specific investment amounts, bond asset classes, and maturity ranges.
Diversification does not guarantee a profit or eliminate the risk of loss.
Shares are not individually redeemable and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 80,000, 100,000 or 150,000 Shares.
ETFs disclose their full portfolio holdings daily.
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BulletShares® ETFs
The funds are non-diversified and may experience greater volatility than a more diversified investment.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
During the final year of the funds’ operations, as the bonds mature and the portfolio transitions to cash and cash equivalents, the funds’ yield will generally tend to move toward the yield of cash and cash equivalents and thus may be lower than the yields of the bonds previously held by the funds and/or bonds in the market.
If interest rates fall, it is possible that issuers of callable securities will call or prepay their securities before maturity, causing the fund to reinvest proceeds in securities bearing lower interest rates and reducing the fund’s income and distributions.
An issuer may be unable or unwilling to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Income generated from the funds is based primarily on prevailing interest rates, which can vary widely over the short- and long-term. If interest rates drop, the funds’ income may drop as well. During periods of rising interest rates, an issuer may exercise its right to pay principal on an obligation later than expected, resulting in a decrease in the value of the obligation and in a decline in the funds’ income.
An issuer’s ability to prepay principal prior to maturity can limit the funds’ potential gains. Prepayments may require the funds to replace the loan or debt security with a lower yielding security, adversely affecting the funds’ yield.
The funds currently intend to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the funds’ investments. As such, investments in the funds may be less tax efficient than investments in ETFs that create and redeem in-kind.
Unlike a direct investment in bonds, the funds’ income distributions will vary over time and the breakdown of returns between fund distributions and liquidation proceeds are not predictable at the time of investment. For example, at times the funds may make distributions at a greater (or lesser) rate than the coupon payments received, which will result in the funds returning a lesser (or greater) amount on liquidation than would otherwise be the case. The rate of fund distribution payments may affect the tax characterization of returns, and the amount received as liquidation proceeds upon fund termination may result in a gain or loss for tax purposes.
During periods of reduced market liquidity or in the absence of readily available market quotations for the holdings of the fund, the ability of the fund to value its holdings becomes more difficult and the judgment of the sub-adviser may play a greater role in the valuation of the fund’s holdings due to reduced availability of reliable objective pricing data.
The funds’ use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlying Index, and may be subject to greater volatility.
BulletShares® High Yield ETFs
The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
BulletShares® Municipal ETFs
Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.
This information is intended for US residents.
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