It is hard out there for anyone seeking income. But investors keep trying: through September, about $151 billion had flowed into bond ETFs, according to CFRA’s First Bridge data.
One longtime market participant thinks there’s a good case to be made for a fixed-income strategy that may fly under the radar for investors and advisers.
“Laddered bond portfolios” aren’t exciting, said Harry Whitton, head of ETF sales and trading at Chicago-based market maker Old Mission, but the strategy has stood the test of time, and is available in ETF form.
The idea is to build a portfolio of bonds that have staggered maturities. In theory, it can smooth out cash flow, as well as any issues around reinvesting or accounting for capital gains. Using ETFs to do the investing helps manage liquidity and diversify risk, Whitton said—not to mention being far easier than picking individual bonds.
“People like these funds and the idea that they can build their own personalized model,” he said in an interview.
Right now, only two ETF issuers offer the products. iShares has a suite called “iBonds,” which comes in Treasury, municipal, investment-grade corporate, and high-yield strategies, and Invesco offers its “BulletShares” in emerging markets, municipal, investment grade and high yield.
The expense ratio, or fee for the fund’s upkeep, are nominal—from 10 basis points to about 43 for BulletShares products, and only about 7 for iBonds. In other words, the funds will cost you between $1, $4.30 and 70 cents for every $1,000 you invest, respectively.
More important, they fill a need in investor portfolios, Whitton thinks. “People are all about safety,” he said.
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