Guggenheim Investments today launched two new BulletShares ETFs, adding to its growing lineup of target-date maturity bond funds in light of the Federal Reserve’s stalled tapering policy.
The two new funds expand the firm’s high-yield corporate bond offering first launched in 2012—both the BulletShares 2019 High Yield Corporate Bond ETF (BSJJ) and Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK) are listed on the NYSE’s Arca platform. Each comes with an expense ratio of 0.42 percent.
Like its predecessors, each of the funds will close upon maturity at the end of each respective year, with investors getting the net asset value of all the bonds in the portfolio.
The expiring feature is key here because rising rates are dangerous for bond-fund investors. As rates rise, bond prices fall, and an actual bond can be held indefinitely and redeemed at its full par value at maturity, making price declines that accompany rising rates irrelevant unless you plan on selling before then. Conventional bond funds don’t have maturity dates, and investors who need every bit of their investments can lose a lot if they have to draw on principal in the middle of a rate-hike cycle.
“The defined-maturity feature continues to be a proven investment strategy for investors looking to save for life events like retirement amid a volatile economic environment,” said Bill Belden, managing director, product development at Guggenheim Investments.
The Fed last week surprisingly announced that it will retain its $85-billion-a-month bond-buying program for now in a decision that came in part because the central bank fears that the upcoming debt-ceiling debate in October might derail a still-fragile recovery.
That unexpected move pushed yields on 10-year Treasurys 14 basis points lower to 2.70 percent the day of the announcement—Wednesday—off from as high as 2.98 percent at the start of the month, but sharply higher than the 2.18 percent in early summer.
It also offered a shot in the arm for long-dated bond ETFs, at least momentarily. Funds like the iShares 20+ Year Treasury ETF (TLT | A-78) jumped 1.5 percent in price following the Fed announcement.
Year-to-date, the BulletShares product suite asset base has grown $1.9 billion in AUM through September 20, an increase of 107 percent, according to the firm.
In an interview with IndexUniverse, Belden said that the BulletShares suite had its highest sales month in July ($929 million) and its second-highest month of inflows ($451 million) in August. “We're planning right now around an expansion in the high-yield suite,” he said.
Our annual fixed-income conference is coming up in a little more than a week and I can’t wait.
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