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Guggenheim Launches 4 More Target Date Bond ETFs

Zacks Equity Research

Guggenheim Investments – one of the top players in the target-date bond ETF space – has been continually aiming to expand its presence in the fixed income world. This is especially true as most of the launches by the issuer in the past two years have been target-date bond ETFs.

Continuing with the trend, the issuer has recently added four more target-date ETFs to its family of BulletShares bond ETFs, bringing the total number of funds in this space to 20. Among these, 11 belong to the investment-grade bond space, while nine cover the high-yield bond space.

Of the recently launched four ETFs –- Guggenheim BulletShares 2023 Corporate Bond ETF (BSCN), Guggenheim BulletShares 2024 Corporate Bond ETF (BSCO), Guggenheim BulletShares 2021 High Yield Corporate Bond ETF (BSJL) and Guggenheim BulletShares 2022 High Yield Corporate Bond ETF (BSJM) – two include investment-grade funds, while the other two include high-yield funds.

Below we have highlighted some of the details about the above funds, for investors seeking new plays on target-date bond ETFs:

BSCN and BSCO in Focus

BSCN tracks the BulletShares USD Corporate Bond 2023 Index to track the performance of a held-to-maturity portfolio of U.S. dollar-denominated investment-grade corporate bonds with effective maturities in the year 2023.

The product looks to target the intermediate part of the yield curve with average maturity of 8.76 years and average duration of 7.40 years. BSCN holds a basket of 182 securities with Time Warner, Verizon Communications and CVS Health Corp as the top three holdings, all having under 5% allocation each.

Sector-wise, finance dominates the index with 28.9% allocation, followed by consumer non-cyclical, communications and energy, each with double-digit allocation (see all Investment Grade Corporate Bond ETFs here).

BSCO, however, holds a smaller basket of 91 securities to track the performance of U.S. dollar-denominated investment-grade corporate bonds with effective maturities in the year 2024. Lyondellbasell, Newfield Exploration Co and American Tower Corp take the top three spots with a combined allocation of 11%.

The finance sector dominates BSCO as well, with more than one-third allocation, followed by consumer staples and energy with 18.3% allocation each. Average maturity for the fund stands at 9.57 years with average duration of 7.80 years.

Both the funds charge 24 basis points as fees.

BSCN and BSCO are likely to face direct competition from iShares iBonds Mar 2023 Corporate ETF (IBDD), launched last year. The fund manages an asset base of $20.8 million and is quite thinly traded.

IBDD holds a basket of 233 securities providing exposure to investment grade corporate bonds that mature between April 2022 and March 2023. However, IBDD is quite cheaper than BSCN and BSCO, with just 10 basis points as fees (read: 2 New Target Date Bond ETFs Debut from iShares).

BSJL and BSJM in Focus

BSJL provides exposure to a basket of 257 U.S. dollar-denominated high-yield corporate bonds with effective maturities in 2021. SM Energy Co. occupies the top spot with 6.2% allocation, followed by First Data Corporation and L Brands Inc. The index spreads out its assets well among different sectors having double-digit allocation to energy, communications, consumer cyclical and consumer staples.

As far as BSJM is concerned, it holds 204 U.S. dollar-denominated high-yield corporate bonds with effective maturities in 2022. Communications, energy and consumer staples dominate the fund with roughly two-thirds of total fund exposure. Both BSJL and BSJM charge 42 basis points as expenses (see all High-Yield/Junk Bond ETFs here).

While there are already about 40 ETFs in the High Yield ETF space, BSJL and BSJM are likely to face competition from the top players in the category: iShares iBoxx High Yield Corporate Bond Fund (HYG) and State Street SPDR Barclays Capital High Yield Bond ETF (JNK). HYG manages an asset base of $12.6 billion charging 50 basis points as fees, while JNK has garnered $9.1 billion since inception with 40 basis points as expense ratio.

How do these fit in a portfolio?

These products are interesting choices for investors who wish to avoid stock market volatility while at the same time ensure a steady stream of cash flow from their portfolio. Moreover, target-date bond ETFs are especially useful for investors seeking to match up assets with liabilities, in order to have capital ready for future life events. Further, these bonds create laddering possibilities for investors seeking to retain a targeted exposure to the bond market.

However, investors should keep in mind that target date bond funds usually have lower trading volumes as compared to regular bond counterparts and hence are likely to have wider bid-ask spreads which might increase the total cost of investing (read: Target Date Bond ETFs: Best or Worst Fixed Income Funds?).

Also, while investment grade bond ETFs are usually considered to be quite safe in terms of credit risk, high yield bonds are usually quite risky in terms of credit risk but offer high yield to compensate for the higher risks.

Bottom Line

BSCN and BSCO might find it a little difficult to garner sufficient assets to begin with, given that these are more expensive than their iShares counterparts. Moreover, we already have quite a many popular funds in the high-yield space, which might make the going tough for BSJL and BSJM.

Nonetheless, there are hardly any target date funds in the high yield bond ETF space, giving an edge to the duo (BSJL and BSJM). Also, many other BulletShares funds have gained decent popularity, so there is definitely hope for these new products going forward.

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Read the analyst report on BSCN

Read the analyst report on BSCO

Read the analyst report on BSJL

Read the analyst report on BSJM

Read the analyst report on IBDD

Read the analyst report on JNK

Read the analyst report on HYG


Zacks Investment Research



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