Are there any bond funds that can be held to maturity?

[AboutThere]

I'm looking for a bond fund that is essentially a group of known bonds that mature at the same time. Say, a group of 10 4-year municipal bonds, or a group of 25 3-year corporate.
As I near retirement drawdown, I'd like a portion of my bond funds to be, well, bonds, and not an interest rate bet like a total market bond fund.
At the same time, I don't want to research and buy 10 different bonds for each year of a bond ladder (and my spouse absolutely won't do that if I pass away first).

So, I'm looking for some risk spreading and some ease of use, and I want to be able to hold them to maturity.

If not, maybe I'll start a business in retirement doing just that!

 

[JOBO]

Perhaps these ETFs?

Invesco BulletShares ETFs

BulletShares ETFs let you build a portfolio of bonds with different maturities to better manage income and risk.

www.invesco.com

 

[Midpack]

Holding to maturity funds don't guarantee you won't take a hit on your initial investment. All funds NAV fluctuate with interest rates whether they hold to maturity or not. By all means correct me if I'm wrong, but I once considered hold to maturity funds until I realized that doesn't guarantee you won't take a NAV hit when you sell.

I think the OP may be looking for a bundle of bonds held to maturity where you (in essence) buy at a discount and get set yield while you're holding them - guaranteeing principal and yield? I am not aware of an investment vehicle like that, I might be interested too.

 

[Golden Mean]

It is an interesting concept. I think it would have to be structured where one couldn't sell? You'd get interest payments and would have to wait for a 'distribution' which would happen when a bond (in the fund) matures. Guessing that'd have some weird tax issues.

I wonder if it's worth the hassle vs just using a money market fund and getting less interest when the yield curve spreads.

 

[AzDreamer]

I used my browser's AI assistant and asked 'bond funds with maturity date' . See answer below.

There are several types of bond funds that offer maturity dates, including:

Defined-maturity funds: These funds hold a portfolio of bonds that mature around a specified date. This allows investors to build a bond ladder, where they can stagger their exposure to changing interest rates.

Term bond funds: These funds invest in bonds with specific maturity dates, such as 2-year, 5-year, or 10-year bonds.

Maturity-date bond funds: These funds invest in bonds that mature on a specific date, such as a 10-year bond fund that matures in 10 years.

Investing in bond funds with maturity dates can offer several benefits, including:

Predictable cash flows: Bond funds with maturity dates provide predictable cash flows, as investors know exactly when they will receive their principal back.

Reduced interest rate risk: By investing in bonds with specific maturity dates, investors can reduce their exposure to interest rate risk, as they are not tied to the market’s fluctuations.

Diversification: Bond funds with maturity dates can provide diversification benefits, as they invest in a range of bonds with different maturity dates and credit qualities.

Things to Consider

When investing in bond funds with maturity dates, it’s essential to consider the following:

Credit risk: Bond funds with maturity dates still carry credit risk, as the issuer may default on their debt obligations.

Interest rate risk: Although bond funds with maturity dates can reduce interest rate risk, they are not immune to changes in interest rates.

Liquidity: Bond funds with maturity dates may have limited liquidity, as investors may not be able to sell their shares quickly or at a favorable price.

 

[Route246]

Are you asking for a fund where you are locked in to a specific maturity date with no option to exit until that date? That sounds very sub-optimal.

 

[pb4uski]

I'm looking for a bond fund that is essentially a group of known bonds that mature at the same time. Say, a group of 10 4-year municipal bonds, or a group of 25 3-year corporate.
As I near retirement drawdown, I'd like a portion of my bond funds to be, well, bonds, and not an interest rate bet like a total market bond fund.
At the same time, I don't want to research and buy 10 different bonds for each year of a bond ladder (and my spouse absolutely won't do that if I pass away first).

So, I'm looking for some risk spreading and some ease of use, and I want to be able to hold them to maturity.

If not, maybe I'll start a business in retirement doing just that!

You're looking for a target-maturity bond fund like Blackrock iBonds ETFd or Bulletshares

 

[pb4uski]

Holding to maturity funds don't guarantee you won't take a hit on your initial investment. All funds NAV fluctuate with interest rates whether they hold to maturity or not. By all means correct me if I'm wrong, but I once considered hold to maturity funds until I realized that doesn't guarantee you won't take a NAV hit when you sell.

I think the OP may be looking for a bundle of bonds held to maturity where you (in essence) buy at a discount and get set yield while you're holding them - guaranteeing principal and yield? I am not aware of an investment vehicle like that, I might be interested too.

Yes, I think you are wrong. If you look at the terminal distributions of these funds (which I'll concede is hard to find) you will find that the terminal distributions are pretty consistent.

 

[Midpack]

Yes, I think you are wrong. If you look at the terminal distributions of these funds (which I'll concede is hard to find) you will find that the terminal distributions are pretty consistent.

Thanks. Guess I need to look again. Can you point me to a specific example ETF?

 

[pb4uski]

Invesco Bulletshares or Blackrock iBond ETFs

 

[MichaelB]

Do the Blackrock funds or Bulletshares publish a “final NAV” or expected redemption value for these funds?

 

[VanWinkle]

I'm wondering why these are appealing at this time? It seems the horse has left the barn
and the future may have falling rates for the next few years. This type of fund might seem
great in 2022 as it will guarantee your capital being intact, although at a reduced interest
rate. Will the ETF include the capital gains associated with falling rates?

 

[pb4uski]

Do the Blackrock funds or Bulletshares publish a “final NAV” or expected redemption value for these funds?

It's hard to find, especially for past the most recent terminal year. I guess you could call or write and ask for them.

 

[pb4uski]

I'm wondering why these are appealing at this time? It seems the horse has left the barn
and the future may have falling rates for the next few years. This type of fund might seem
great in 2022 as it will guarantee your capital being intact, although at a reduced interest
rate. Will the ETF include the capital gains associated with falling rates

I think it operates similarly to a bond. The NAV is based on the fair value of the bond portfolio and pricing closely follows NAV. If interest rates decrease after you buy the price and NAV would increase but as the bonds approach their maturity year the pricing would converge towards par.

There is no guarantee of your capital being intact... if when you buy the NAV exceeps the par value per share then that premium will decay and reduce yield, just like it would in a bond bought at a premium... and the inverse if bought at a discount. But the decay is simply and adjustment to your yield/total return. If you hold to maturity, your return will be positive, which can't be said of a bond fund with a similar holding period.

I think the appeal, even in a declining rate environment is similar to bonds because you can always sell prior to maturity and capture the unrealized gain arising from the decline in rates.

BTW, I don't currently hold any of these but have in the past. While these days I prefer individual bonds, if someone who wold otherwise invest in individual bonds prefers the diversification benefits and simplicity of target-maturity ETFs then I think they are tempting.

 

[AboutThere]

Thanks all - I looked at Bulletshares and it seems that is similar to what I'm asking about.

 

[USGrant1962]

One thing to watch with Bulletshares is that they behave oddly in the final year. As noted above, they should converge on par value, but also the individual bonds within the fund mature at different times during the year affecting the yield. When I held them, cash was paying ~0%. With cash now paying ~5% it should be fine, but who knows when your ladder matures. It doesn't reduce their value as a fixed income investment, just something to be aware of.

From their website:

What happens as BulletShares ETFs approach maturity?​

As BulletShares ETFs approach maturity, their durations decrease. In the last six months of the ETF’s maturity year, it is anticipated that the bonds in the portfolio will either mature or be called. Proceeds for these events will then be held either in cash or in cash equivalents such as US Treasury bills or commercial paper.​

 

[pb4uski]

And here's more. With the current inverted yield curve, the odd behavior that you describe above is less of a concern.

A look at the last year BulletShares® Corporate Bond ETFs maturity process:

https://www.invesco.com/us-rest/contentdetail?contentId=38957741d24d2710VgnVCM1000006e36b50aRCRD

 

[jim584672]

Sounds like a Unit Investment Trust.

https://www.investor.gov/introduction-investing/investing-basics/glossary/unit-investment-trusts-uits