Guggenheim Funds Launches Suite Of High Yield BulletShares

by on January 26, 2011 | ETFs Mentioned:

Guggenheim, the Chicagoland-based ETF issuer known for its unique sector and international funds, continued the expansion of its fixed income lineup this week with the introduction of four more BulletShares ETFs. The new products will be the first target maturity date ETFs to offer exposure to junk bonds, providing investors with more precise instruments that can be used to fine tune fixed income exposure. The four funds will track high yield bond indexes comprised of debt maturing in 2012 (BSJC), 2013 (BSJD), 2014 (BSJE), and 2015 (BSJF). Guggenheim has longer-dated high yield BulletShares products in registration, but chose to roll out the short-term products first in an environment where investors are growing increasingly concerned about the impact of rising interest rates.

Unlike most fixed income ETFs and mutual funds, each of the BulletShares products invests in securities scheduled to mature in a single calendar year. As that year arrives and the debt begins to mature, proceeds are not reinvested but rather distributed to investors. As such, the BulletShares more closely replicate the experience of investing in individual bonds while providing immediate diversification across a basket of securities. “We are excited to partner with Guggenheim Funds to extend the BulletShares methodology to the high-yield bond ETF market,” said Matthew Patterson, head of investment strategy for Accretive Asset Management. “We believe that these products will make the high-yield sector more accessible to investors while minimizing concentration risk often associated with individual bond investing.” [also read our Q&A With Matthew Patterson On Bond ETF Investing]

The new funds look to follow in the footsteps of the BulletShares release that targeted the investment grade corporate bond market last year. The BulletShares products might have appeal for liabilities-based investors looking to fund a known future cash outlay or for investors with longer time horizons who are frustrated with the turnover exhibited by some of the more traditional fixed income ETFs. Because the majority of fixed income products don’t have a targeted end date, proceeds from sales or maturities are reinvested into other debt securities, which can make the realized yield unpredictable and create front-running opportunities that can eat into returns [also see Ten ETFs Every Advisor Should Know But Most Don't].

“The introduction of these new funds extends our suite of BulletShares ETFs, the only ETFs available in the marketplace offering defined-maturity exposure to the corporate bond market,” said Steven A. Baffico, senior managing director, Head of U.S. Retail for Guggenheim Funds Distributors, Inc. “Now, investors can easily gain exposure with surgical precision to either the high-yield or investment-grade sector of the market through the construction of customized portfolios tailored to their specific risk preferences and maturity profiles.”

The four new BulletShares products double the size of the High Yield Bonds ETFdb Category, a corner of the market that has seen massive inflows over the last two years as interest rates in the U.S. remain near zero and yield hungry investors have been forced to take on additional risk. All of the existing products spread exposure across multiple maturities, though they tend to be concentrated around issues with five to ten years remaining to maturity. The largest junk bond ETF, the iShares High Yield Corporate Bond Fund (HYG), for example, has more than 70% of assets in debt between those points (as does JNK). As such, the new BulletShares could also be interesting options for investors looking to shorten up the duration of their junk bond exposure.

In addition to the investment grade and high yield BulletShares ETFs, iShares also offers a suite of target maturity date municipal bond ETFs. Those range from 2012 (MUAA) to 2017 (MUAF) [see Beyond LQD: Exploring Corporate Bond ETF Options].

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Disclosure: No positions at time of writing.