Thoughts on Bullet Share Bond ETFs

[johkar]

Hello -
Retired about a year ago, and rolled my 401k to a Schwab rollover IRA (rest of our portfolio is at Schwab.) My 401K is what we have always thought of as our 'safe' money, meaning we have kept it invested in non-risky, guaranteed return type things.

At the time of my rollover, I bought all CDs, getting between 2.5 and 3% and was happy with that. Now some of those CDs are maturing, and CD rates are not so good any more.

I have dabbled a little in Invesco's Bulletshare bond ETFs (Each ETF is made up of bonds that all mature in a specific year, ie BSCJ matures in 2019, at which time, the ETF is 'disolved', and my principal plus yield is paid back to me in cash.)

I am a fairly novice investor, but I'll tell you why those appeal to me - easier, cheaper and less default risk than individual bonds, and as long as I hold the ETF until it "matures", (that may not be the correct term) I am guaranteed my principal back, plus hopefully some yield. So it feels like I have some of the security of a CD, although without a guaranteed rate of return. The cons include not a great performance track record, and pretty dismal Morningstar reviews (Yes, I look at those number of stars assigned, and am swayed by that - is that dumb??!)

Would like to hear from you all who are more experienced investors than me, what you think of these types of bond ETFs. Blackrock also issues a similar iShares product. Each year of maturity has a different ticker symbol (IBDC and IBDL are a couple of the iShares examples.)

More background on me - right now we are 42% equities, 39% cash and 19% bonds. Cash is high due to a good amount of CDs purchased while rates were high a year ago. Would like to lessen cash and increase bonds. We are comfortable with equities where they are.

Current bond holdings include PIMIX and JMSIX. Thought about doing more of these, but afraid that might be too risky for our 'safe' money.!!

Sure would appreciate advice!! Thanks!

 

[njhowie]

The bullet shares are much better than traditional bond funds because of the certainty involved with the "maturity"/liquidation date being fixed.

I only purchase individual bonds (and CDs and treasuries), but if I were going to buy a bond fund, it would definitely be one of the bullet share or similar funds with the term/liquidation date I was interested in.

 

[pb4uski]

A good portion of my fixed income portfolio were Bulletshares and iBonds.... I viewed them as a CD substitute but with warts. BSCK was my favorite. I jettisoned them all in May 2018 because I found the performance underwhelming. It looks like the performance from inception to date has been about 2.4%.... ok for the times I guess.

One thing I learned to keep in mind.... the yields and distributions drop like a rock in the maturity year as bonds mature and the proceeds are temporarily reinvested in lower yielding short-term paper to build up cash for the terminal distribution in December... so if you own them you might want to consider selling in December of the year prior to the terminal distribution to avoid that lag.

The projected YTM of the 2024 issue is 2.74% and I can find credit union CD specials of 3% or a tad more with no credit risk and no interest rate risk (other than the EWP).

 

[johkar]

A good portion of my fixed income portfolio were Bulletshares and iBonds.... I viewed them as a CD substitute but with warts. BSCK was my favorite. I jettisoned them all in May 2018 because I found the performance underwhelming. It looks like the performance from inception to date has been about 2.4%.... ok for the times I guess.

One thing I learned to keep in mind.... the yields and distributions drop like a rock in the maturity year as bonds mature and the proceeds are temporarily reinvested in lower yielding short-term paper to build up cash for the terminal distribution in December... so if you own them you might want to consider selling in December of the year prior to the terminal distribution to avoid that lag.

The projected YTM of the 2024 issue is 2.74% and I can find credit union CD specials of 3% or a tad more with no credit risk and no interest rate risk (other than the EWP).

Thanks for the heads up pbruski. I would stick with CDs if I could get a better rate through Schwab. Highest appears to be 1.8 now. Can get better rates through my on line banks, but don't really want to move this account out of Schwab.

I am glad to see others using these bond ETFs.

 

[njhowie]

If you are looking for better yields than savings/CDs and are considering the bullet shares, then you should have a look at MINT. It is from Pimco and the duration is very short at just a few months so risk is extremely low. It yields something between 2.5% and 2.8% depending on the day of the month you do the calculation. It's been around a good amount of time so you can look at the price chart and see that it is extremely stable and it pays monthly. It goes up by a penny or two every day and then pays 23 cents/share on the first of the month.

I have a couple brokerage accounts at Merrill Edge and Robinhood which do not pay interest on cash balances, so I keep the bulk of it in MINT.

 

[johkar]

If you are looking for better yields than savings/CDs and are considering the bullet shares, then you should have a look at MINT. It is from Pimco and the duration is very short at just a few months so risk is extremely low. It yields something between 2.5% and 2.8% depending on the day of the month you do the calculation. It's been around a good amount of time so you can look at the price chart and see that it is extremely stable and it pays monthly. It goes up by a penny or two every day and then pays 23 cents/share on the first of the month.

I have a couple brokerage accounts at Merrill Edge and Robinhood which do not pay interest on cash balances, so I keep the bulk of it in MINT.

Thanks njhowie, I will look at that.

 

[misanman]

I have an eight year iBonds ladder that I roll over each year. It approximately represents RMDs and is at least partial insurance against potential long term care expenses.

 

[brewer12345]

I have used them as a piece of bond exposure. The I shares ones I own are typically about half BBB and half A rated. A little junky for my taste, frankly, but in short dated bonds it is tolerable. At this point in the cycle they don't offer much value, but that is the case with pretty much the whole bond market.

 

[target2019]

Article describes the characteristics of Ultra-Short ETF and funds. May need a free SA account to read.

https://seekingalpha.com/article/42...-cash-alternative-bond-etfs?mod=mw_quote_news

 

[GravitySucks]

I had an 8 year ibond ladder. It's down to 6 years now. I have rolled them to individual bonds and a managed bond funds as they mature. When this year's matures, if I don't need the money to live on, it will be invested in treasuries and an intermediate treasury fund.
The reason is I am more comfortable with regular bond funds and individual bonds than I was 6 years ago, and moving to highest quality will keep me more comfortable at 60/40 and might convince me to move back to the 70/30 I was at.

 

[johkar]

Appreciate everyone's perspective, and the link from target2019. Lot of good info there, I will be researching those ETFs. I see one of them was MINT, which njhowie recommended.