Are Bond ETFs Mature Enough for Investors?
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Friday, October 15, 2010

Are Bond ETFs Mature Enough for Investors?

Fundsters interested in fixed income may want to pay atention to today's Wall Street Journal "Fund Track" column , which highlights a gropwing breeed of exchange-traded funds: "end-date" bond ETFs.

BlackRock Inc.'s iShares [see profile] and Guggenheim Partners LLC [see profile] were mentioned in the article as offering these offerings, which are designed to terminate when their bonds' principal is returned, giving investors the opportunity to secure yields during the initial investment.

However, there are some hurdles fundsters need to look out for such as the difference in payouts during rising and falling interest rate environments and trading costs, according to the article. And not all advisors are jumping on the bandwagon just yet.

Ben Birken, a Chapel Hill, North Carolina-based advisor, was quoted as saying, "If you are spending the interest and anticipating you'll get all [the original investment] back, that's not necessarily going to happen." He isn't steering his clients to the ETFs yet.

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