Alternative ETFs for building a Fixed Income Ladder

by Wayne Ferbert on May 30th, 2013

After I posted my article last week on the new line of fixed maturity bond ETFs from iShares, a reader pointed out that Guggenheim has a line of these products already out. Guggenheim calls them ‘BulletShares’. They were introduced to the market in June 2010 – so they have a three year head start on the iShares products.
 
First, you can find out all about these ETFs from this link on the Guggenheim website. We investigated these products because we like the idea of using these ETFs for a small investor to be able to build your own Laddered fixed income portfolio.

So, I investigated these ETFs from Guggenheim and this is what I found.
 
Findings:
Because these products have been out longer, they have more assets in them than the iShares equivalent. As a result, they tend to trade with a tighter bid/ask spread. More importantly, they also tend to trade with a smaller premium/discount to the NAV – when compared to the iShares product. Advantage: Guggenheim
 
The BulletShares ETF line includes a line of Investment Grade Corporate Bonds and a line of High Yield Bonds. So, the BulletShares line offers a little more flexibility around the quality of the bonds you select. Advantage: Guggenheim
 
Bulletshares offers a fixed maturity date for every year through 2020 and 2018 for the Investment Grade and High Yield, respectively. This gives you more flexibility to structure your ladder and an opportunity to roll a portion of your ladder to a new maturity date with higher yields every year. Advantage: Guggenheim
 
The Guggenheim Bulletshares line has an expense ratio of 24 bps and 42 bps for its Investment Grade and High Yield lines, respectively. That compares to 10 bps for the iShares line.  iShares has a lower cost for the investor. Advantage: iShares
 
iShares is a larger player in this space – but Guggenheim is certainly not a company that you need to worry about staying in business. IN the long run, I expect iShares distribution advantage to help them grow their fixed maturity ETF line to be larger than the Guggenheim line. Advantage: iShares (small advantage)
 
Conclusion:
I need to thank our reader that pointed out the Guggenheim line existed. It is a nice product. If I was building a laddered fixed income portfolio for a client today with smaller balances, I would use the Guggenheim product without hesitation. I can’t say that about the iShares products yet.

Just remember, if you believe that interest rates are about to turn around and head up - any ladder you build now will lock in today's yield to maturity. However, at least you will have some portion of your ladder maturing in near years - and available to be rolled in to new higher yielding fixed income in your ladder.



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