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Evaluating Ladder Bond ETFs As Dry Powder Assets

Jun. 03, 2020 5:01 AM ETBSAE, BSBE, BSCE, BSJN4 Comments


  • Sharp market drawdowns have been a frequent and hard-to-predict occurrence over the past few years.
  • Investors who want to be able to inject capital into beat-up assets during drawdowns may wish to maintain a set of dry powder assets.
  • We take a look at the Invesco and BlackRock ladder ETFs to see whether they can fulfill this role.
  • We find BSBE and BSAE - two Invesco EM Debt funds - risk/reward very attractive though their current traded volumes are quite low at the moment.
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As the market continues to recover and grow progressively more expensive, investors may be starting to consider rotating out of more aggressively positioned assets. By holding some capital in assets that are able to hold their value relatively well through periods of volatility - those that we call dry powder assets - investors may be able to take greater advantage of market weakness. It's essential to think about these types of assets beforehand rather than try to improvise in the middle of a drawdown. As the former Treasury Secretary Tim Geithner used to say, "a plan beats no plan".

Last week we explored whether certain CEFs can play a role as dry powder assets. In this article, we take a look at a number of ladder bond ETFs - funds that hold bonds with specific maturities. Because funds with shorter-dated maturity bonds have lower duration and hence lower volatility and drawdowns they can be potentially used as dry powder assets.

Among the Invesco and BlackRock ladder ETFs we discuss in this article we currently like two USD Emerging Market bond funds:

  • BulletShares 2022 USD EM Debt ETF (BSBE)
  • BulletShares 2021 USD EM Debt ETF (BSAE)

These funds offer attractive yields for their March drawdowns. An important caveat is to watch their traded volume which is currently on the low side.

CEF Market Experiences Periodic Sell-offs

Over the last few years, it certainly seems like we have been seeing increasingly frequent sell-offs. Below is a list of just some risk-off episodes over the last few years:

  • Mar-20: COVID-induced recession and liquidity crisis
  • Dec-18: Concerns around hawkish Fed communication and QE unwind
  • Feb-18: Volmageddon
  • Nov-16: Election period interest-rate spike
  • Nov-14: Commodity price crash
  • May-2013: Taper tantrum

We can clearly see these periods in the behavior of CEF discounts which are

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This article was written by

ADS Analytics profile picture

ADS Analytics is a team of analysts with experience in research and trading departments at several industry-leading global investment banks. They focus on generating income ideas from a range of security types including: CEFs, ETFs and mutual funds, BDCs as well as individual preferred stocks and baby bonds.

ADS Analytics runs the investing group Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (4)

Very informative article. I will need to do some more research but this does look like a good way to calm the volatility of my portfolio.
Another good article. Thanks for sharing the ideas.
gastro4 profile picture
I have used defined maturity bond ETFs, Invesco corporates (BSC...) and ishares muni’s (IBM..), for a number of years for a percentage of the fixed income side of my portfolio. I guess at a certain age one becomes more concerned about return “of”, rather than return “on” capital. I’m happy to trade off the ER (.1 for Invesco, .18 for ishares) for the diversity of having hundreds of bonds which minimizes default risk (still never happy seeing NJ or Illinois bonds in a muni portfolio). I have set up these ladders going out 6-8 years.  
To avoid cash drag I always sell early in the year and roll the proceeds into the new end of ladder. The ishares munis all mature after May 31 of that year (so I sell and roll before May).
I have not looked at defined maturity EM bonds but will consider.
Thanks for article.
ADS Analytics profile picture
Thanks for the info on your experience.
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