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Registered investment advisor, ETF investing, long-term horizon
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According to Morningstar, the DWS Core Plus Income Fund (SCSBX) was introduced in April 1928 and is still here today. Bond mutual funds have been around for more than 80 years, and arguments against them have been around for nearly as long. The chief complaint – bond funds continually roll their positions and do not mature like individual bonds.

For most bond funds that is true. Most, but not all. In 1985, the Benham Target Maturities Trust was introduced, consisting of six no-load portfolios of zero-coupon bonds with maturities staggered five years apart starting with 1990.

In January 2010, iShares launched its AMT-Free Municipal Series of six ETFs with target end dates of 2012 to 2017. Target maturity bond funds had now arrived in the ETF space. In June 2010, Guggenheim BulletShares (formerly called Claymore) brought investment-grade taxable corporate bonds into the fold of target maturity funds.

This week (1/25/11), Guggenheim extends this concept to the world of high yield “junk” corporate bonds, allowing investors to now target future obligations and create laddered portfolios with another bond asset class.

The underlying BulletShares High Yield Corporate Bond Indices were created by Accretive Asset Management. Selective index data is displayed below, but keep in mind that it is index data and not fund data. Additionally, the yields will likely be reduced by the 0.42% expense ratio for each fund. The four new ETFs will pay monthly dividends and will seek to have all positions mature and the fund terminate near December 31 of the year indicated in their names.

  • Guggenheim BulletShares 2012 High Yield Corporate Bond ETF (BSJC) (summary page) has an underlying index containing 73 bonds with a weighted average duration of 1.3 and a weighted average yield to maturity of 5.4%.
  • Guggenheim BulletShares 2013 High Yield Corporate Bond ETF (BSJD) (summary page) has an underlying index containing 119 bonds with a weighted average duration of 1.8 and a weighted average yield to maturity of 5.8%.
  • Guggenheim BulletShares 2014 High Yield Corporate Bond ETF (BSJE) (summary page) has an underlying index containing 170 bonds with a weighted average duration of 1.7 and a weighted average yield to maturity of 6.2%.
  • Guggenheim BulletShares 2015 High Yield Corporate Bond ETF (BSJF) (summary page) has an underlying index containing 174 bonds with a weighted average duration of 1.6 and a weighted average yield to maturity of 7.2%.

Defined maturity bond ETFs simultaneously combine the best features of individual bonds (specific maturity) with those of bond funds (diversified portfolio), while eliminating the worst features of each. I’m of the opinion they are extremely useful portfolio construction tools. However, the marketplace has not yet supported my view, as assets in these funds remain relatively low. Hopefully, that will soon change.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Source: First Target-Date Maturity Junk Bond ETFs From Guggenheim