Income ETFs have become a major part of the investing landscape in recent years, as asset managers have offered new, innovative solutions within the category. Investors of all life stages, from retirement down to those just out of college, have sought ways to add current income to their portfolios. Bond ladder ETFs offer a particularly appealing innovation on income strategies that may appeal to certain advisors and their clients.
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Income ETFs provide income with all kinds of tools, from dividends and high yield bonds to options overlays and FLEX shares. They most often share, however, an expectation to quietly hum in the background of a portfolio. Rarely do they specifically line up with a particular portfolio goal. Instead, such funds often act as passive, almost protective investments.
Bond Ladder ETFs: Income Revamped
Bond ladder ETFs represent a much more intentional take on income ETFs. Investors use ETFs like the Northern Trust 2030 Tax-Exempt Distributing Ladder ETF (MUNA ) to fund specific time-based goals. Investors can use funds like MUNA to pay for college, for example, thanks to the fund’s significant cash payouts.
MUNA charges 18 basis points for an active ETF approach. For MUNA specifically, the fund provides tax-exempt income and/or principal distributions via a laddered portfolio of investment-grade U.S. municipal bonds. As the bonds at each “rung” of the fund’s roughly equal five rung allocations mature, the ETF makes a cash distribution, primarily of the par value from the maturing bonds. It liquidates in 2030 at the final rung.
That could make it an enhanced alternative to traditional income ETFs for investors wanting a goal-oriented offering. From paying for college to generating cash flow in retirement, with the firm’s longer-term 10-, 20-, and 30-year bond ladder ETFs, such strategies provide a welcome new addition to the broader income ETFs ecosystem.
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Disclosures:
ETF investing involves risk, and principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV). They are not individually redeemed from the ETF. Brokerage commissions will reduce returns. The net asset value of the Northern Trust ETFs will decline over time as income payments are made to shareholders. Individual bonds carry an obligation to fully return principal to investors at maturity, however ETFs have no such obligation.
Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.
All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Not FDIC insured | May lose value | No bank guarantee
