Defined-Maturity ETFs: A New Fixed-Income Instrument Not Too Many People Know About

by Jason Jenkins

Income has been the rally cry for investors over the last few years.

We all know about dividends, but there are other sources of income out there that many investors haven’t considered. And recently one newer fixed-income instrument has seen a lot of action. It aims to provide the peace of mind of bonds with the diversification of a mutual fund. It's called a defined-maturity ETF.

ETFs are traded on equity exchanges and have the ability – unlike typical mutual funds - for intraday trading. But the defined-maturity ETF actually matures like a "target-date" mutual fund.

With this vehicle, you can now customize how exposed you are to corporate debt.

Guggenheim Investments Managing Director, Portfolio Strategist Tony Davidow, said in an interview, “Defined-maturity ETFs have been embraced by advisors who are building laddered portfolios, require income to support their client's life-style, or are seeking to meet certain client’s life goal needs.”

So, in other words, defined-maturity ETFs gives income seekers expected income through monthly distributions. And maybe more importantly, at maturity, the investors would get back their principal just as if they invested in an individual bond.

Davidow went on to say that, “Defined-maturity ETFs are ideal tools for laddering bond portfolios... Because of the finite maturities, advisors can use multiple defined-maturity ETFs to spread their risk, and stagger their maturities.”

If the “laddered” bond ETF approach seems attractive to you, you may want to look at the Guggenheim BulletShares target-date corporate bond ETFs. These defined-maturity funds are pretty good at managing exposure risk.

Another thing to keep in mind is that unlike funds that are actively managed, you're not going to have to deal with high portfolio turnover, a larger fund expense ratio, or a changing dividend stream. The BulletShares are put together with an end in sight where shareholders know when they’ll get a payout of the ETF's net asset value.

The Guggenheim BulletShare ETF family includes the following:

Guggenheim BulletShares 2012 Corporate Bond ETF (NYSE: BSCC)
Guggenheim BulletShares 2013 Corporate Bond ETF (NYSE: BSCD)
Guggenheim BulletShares 2014 Corporate Bond ETF (NYSE: BSCE)
Guggenheim BulletShares 2015 Corporate Bond ETF (NYSE: BSCF)
Guggenheim BulletShares 2016 Corporate Bond ETF (NYSE: BSCG)
Guggenheim BulletShares 2017 Corporate Bond ETF (NYSE: BSCH)
Guggenheim BulletShares 2018 Corporate Bond ETF (NYSE: BSCI)
Guggenheim BulletShares 2019 Corporate Bond ETF (NYSE: BSCJ)
Guggenheim BulletShares 2020 Corporate Bond ETF (NYSE: BSCK)

Mr. Davidow stated that assets under management in Guggenheim BulletShares increased to $1.6 billion from $500 million since 2011. They manage 80 different ETFs worth somewhere in the neighborhood of $11.8 billion. He went on to say that the 16 BulletShares are the fastest-growing ETFs.

One Knock on the Target-Date ETFs to Consider

Here’s an FYI…

One knock on target-date ETFs is that at this moment they do not offer investor specific investing. That means that presently, you do not have the ability to create a portfolio that can overweight, underweight, or cut out specific sectors.

Good Investing,


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