Bond laddering is an effective tool for fixed-income investors made simpler with exchange-traded funds, and BlackRock expanded its efforts in this area with today’s launch of the iShares iBonds 2026 Term High Yield and Income ETF (IBHF).
The fund is the 37th product in the iShares iBonds ETF lineup of target-maturity ETFs that hold bonds designed to mature in a single calendar year.
IBHF tracks an index comprising mainly U.S. dollar-denominated high-yield bonds maturing between January 1, 2026 and December 15, 2026. The fund begins trading with a portfolio consisting almost entirely of junk bonds, along with a 3% stake in cash and derivatives
The iShares iBonds ETF suite comes with targeted maturities ranging from 2020 through 2030. They invest in one of four asset classes: U.S. Treasuries, municipal, investment-grade and high-yield bonds.
Bond laddering based on maturity dates provides less duration risk, or interest rate risk as the bonds—or target-maturity bond ETFs—approach maturity. When bonds within an ETF mature the proceeds go to cash and cash equivalents, and when all of the bonds mature within a target-maturity bond ETF the fund delists and pays out a final distribution to shareholders.
Target-maturity bond ETFs, such as those in the iBonds lineup, aim to provide an anticipated yield to maturity via monthly distributions and a final end-date distribution.
Building a bond ladder portfolio with individual bonds can be cumbersome and expensive. Target-maturity bond ETFs are a more time and cost-efficient way to create laddering strategies. The IBHF fund, for example, charges a net expense ratio of 0.35%.
Along with the iBonds suite, the other leading target-maturity bond ETF provider is the Invesco BulletShares roster consisting of 34 funds with maturities ranging up to the year 2030. Investment options include corporate, high-yield, municipal and emerging-market bonds.