To tap into fresh bond-market inflows, Guggenheim Investments has added six new bond exchange-traded funds to its existing line up of advisor-focused defined-maturity bond ETFs, which return principal to investors when the bond holdings mature.
The new ETFs include three investment-grade corporate bond and three high-yield ETFs: the Guggenheim BulletShares 2018 Corporate Bond ETF, the Guggenheim BulletShares 2019 Corporate Bond ETF, the Guggenheim BulletShares 2020 Corporate Bond ETF, the Guggenheim 2016 High Yield Corporate Bond ETF, the Guggenheim 2017 High Yield Corporate Bond ETF and the Guggenheim 2018 High Yield Corporate Bond ETF. In all the company has 16 defined-maturity ETFs available to advisors.
The amount of money U.S. investors tucked away in fixed-income ETFs increased from $163 billion to $225 billion in the 12-month period ended August 31, 2012, according to Investment Company Institute data.
"BulletShares provides the income stream of bonds and the diversification benefits of bond funds, which helps advisors manage interest rate and duration risk," said Tony Davidow, portfolio strategist with Guggenheim Investments. "Prior to the introduction of the defined-maturity structure, financial advisors bought either bond funds or individual bonds. This strategy marries their best attributes."
Created in partnership with Index Provider Accretive Asset Management, the very first Guggenheim investment grade BulletShare ETFs were launched in June 2010 followed by the high yield series in 2011. Fidelity Investments followed suit by launching defined-maturity municipal income mutual funds with maturity dates in 2015, 2017, 2019 and 2021.
"Whether it's corporate bonds or other segments of the fixed-income market, if only a small share of the individuals currently investing in individual bonds adopt defined-maturity bond ETFs as an alternative, it's an opportunity in the billions of dollars," said Matthew Patterson, a managing director with Accretive Asset Management in Naperville, Illinois.
With the size of the overall U.S. corporate bond market at $7.7 trillion with individual investors holding approximately $3.5 trillion of this debt, the defined maturity ETF is gaining in popularity. At the end of 2010 after 6 months on the market, BulletShare ETF assets totaled $130 million compared to the end of 2011 when assets reached $770 million. In 2012, there's now $1.65 billion invested in Guggenheim defined maturity ETFs, according to Accretive data.
"It's safe to say that we've seen a favorable reception to the product because retirees need ETFs that help them live off their savings," said Patterson. "Products that provide a defined outcome in advance will fulfill an important role for older investors."
Of the $3.5 trillion of corporate bonds held by individual investors, $1.7 trillion are in mutual funds and similar products with the remaining $1.8 trillion invested in individual bonds, according to Accretive.
Unlike bond funds and typical fixed-income ETFs, BulletShares mature in their target year.