Targeted Bond ETF's - Pros and Cons

[Chuckanut]

I have been looking at some targeted bond funds recently. Most mature between 2-5 years. The ups are a higher interest rate than I can get on a CD for the same time period, and a fixed end to the fund, unlike a 'normal' bond fund. The cons? Well, if a company goes bust and does not pay its bondholders, obviously that will reduce the yield. Any other significant cons that you can think of?

 

[haha]

I have been looking at some targeted bond funds recently. Most mature between 2-5 years. The ups are a higher interest rate than I can get on a CD for the same time period, and a fixed end to the fund, unlike a 'normal' bond fund. The cons? Well, if a company goes bust and does not pay its bondholders, obviously that will reduce the yield. Any other significant cons that you can think of?

Many of these (I an thinking of Bullet Shares) have thin trading and relatively wide spreads. This is enough to nix it for me. The other cons I am aware of are the same cons to any corporate bond investment, but Bullet Shares at least seem to have a bias toward quality.

Ha

 

[pb4uski]

I have some Bulletshares and have been fairly pleased with them. I was careful in buying them and only paid a slight premium over NAV.

I think of them as a CD substitute in that they will mature at a particular time, yields are reasonable, fees are reasonable. The iSharesBond product came out after I bought my Bulletshares and I may transition to those with any new money due to the lower ER.

However, for my shorter term funds, I'm going with the PenFed 3-year 2.02% APR CD as a shelter. I hope interest rates will be back to "normal" in 3 years and in the meantime, 2% isn't bad and will probably keep pace with inflation.

After rebalancing my FI portfolio will have a yield of ~2.9% and a duration of 3 and ER of 16bps. That includes 80% investment grade and 20% high yield.

 

[eytonxav]

I've been interested in the Bulletshares ever since they came out, but have not pulled the trigger since there is no track record as to whether they will actually perform as one might expect from reading the prospectus.