"Bullet" bond ETFs

[Onward]

Two ETF providers, BlackRock Inc.'s iShares unit and Guggenheim Partners LLC, have begun offering "end-date" or "bullet" bond ETFs in the past year. The new funds hold a portfolio of bonds all maturing in the same year.

These Bond ETFs Actually Mimic Bonds - WSJ.com

 

[chinaco]

Interesting.

Not sure if it offers an advantage for US government bonds.

But for muni's and corp.. the diversification and maturity might be a nice way to build a ladder and diversify at the same time. The big question is what is the fee? Does it reduce the additional reward (for the risk) to the level that I would be just as well off buying a Treasury note?

This type of instrument for High-Yield might be very attractive!

 

[brewer12345]

Interesting. Now all the blowhards who do not like bond funds because they maintain constant duration rather than drift toward maturity can shut up.

Actually, I would say this is not a great product for junk. Junk bonds rarely actually mature. Instead they are almost always called prior to maturity and the timing is uncertain. So a set maturity fund holding junk would have a lot of reinvesting to do starting 3 or 4 years before target maturity.

 

[Animorph]

Presumably you buy it at the 10% price, while the late comers buy at a higher price. You could hold until all your money was returned at maturity, or sell when the price increased. Might provide better liquidity and diversification, but with the ETF expense over holding bonds directly.

 

[chinaco]

...

Actually, I would say this is not a great product for junk. Junk bonds rarely actually mature. Instead they are almost always called prior to maturity and the timing is uncertain. So a set maturity fund holding junk would have a lot of reinvesting to do starting 3 or 4 years before target maturity.

I didn't think about the mechanics of managing it. You may be right.

What I was thinking about was the return of principle.

HY Bonds seem to act somewhat like stocks (but different). Depending on the business cycle and related credit risk, the value goes up or down. Yet they are a debt obligation that usually pays a decent coupon.

An open-ended fund essentially puts the investor into riding the valuation wave and/or timing the exit. On the other hand an end date ETF would have a maturity date and return the principle at par (if one did not exit early).

I'll admit that have not thought this out fully. But it would seem to open up a new option that might be beneficial in some ways.