ETFs That Mature Like Bonds : Guggenheim Gets It

  Courtesy of WSJ Reporter Daisy Maxey

While growth hasn’t been explosive, one family of defined-maturity ETFs, offered by Guggenheim Investments, a unit of Guggenheim Partners LLC, has grown to $1.6 billion since the first funds were launched about two years ago. And a defined-maturity municipal-bond fund group at BlackRock Inc.’s iShares unit has attracted about $220 million.

These ETFs seek to combine the diversification of a bond fund with the fixed term of an individual bond. A fund with the year 2015 in its name, for instance, will hold bonds that mature in that year—and it will liquidate by the end of that year.

But while the interest payment and face value of an individual bond are spelled out up front, the funds’ monthly distributions and payouts at maturity may fluctuate some. “It’s a little different structure” for investors to learn about, says Timothy Strauts, an ETF analyst at researcher Morningstar Inc.

The ETFs were designed partly to be building blocks in a “laddered” bond portfolio, where investors buy bonds with staggered maturity dates and hold them to maturity. Traditionally, laddering was done with individual bonds, but getting sufficient diversification can require an investment of $500,000 or more.

Investment advisers are the biggest buyers of the funds, but many wanted to see how the funds worked at maturity before buying, says William Belden, head of product development at Guggenheim. Guggenheim BulletShares 2011 Corporate Bond liquidated successfully at the end of last year, the first in the series to mature, and more advisers are now showing interest, Mr. Belden says.

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