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ETF Specialist

Build Your Own Bond Ladder With ETFs

Target-maturity bond ETFs are an interesting option for fixed-income investors.

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An ongoing debate for many years has been over what is better for investors, individual bonds or bond mutual funds? The decision usually comes down to the investment's goals. If you want complete control of your portfolio's maturity, yield, and credit quality, then individual bonds are for you. If you want broad diversification, liquidity, and consistent portfolio characteristics, then bond funds are the answer. Target-maturity exchange-traded funds from Guggenheim seek to bridge these differences into a product that can appeal to both types of investors.

Target-maturity bond ETFs are very similar to regular bond ETFs except for a key difference. The bonds in a target-maturity fund all mature in the same year. In the maturity year, the fund will close and return all investment capital to shareholders just like an individual bond would. An investor can get the diversification and liquidity benefits of a fund and the return of principal of an individual bond. Target-maturity bond ETFs are the next evolution of fixed-income investing. Growth will be slow initially, but the new structure has too many advantages to not catch on with investors. Let's look at an example of a target-maturity ETF.

Timothy Strauts does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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