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Author: loveoldcars Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75379  
Subject: Maturity Date Bond ETF's Date: 2/19/2011 9:31 AM
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Hi Guys,

Here's a class of bond-etf's I haven't been familiar with, but I'm going to look into!

Maturity-date bond ETFs are unique in that they allow investors to hold a fund to maturity, much in the same way you would an individual bond.

These ETFs track an index of bond issues that come due in the same calendar year. The funds liquidate on December 31 of the listed year, offering investors a payout equivalent to the bonds' face value. Additionally, these funds make monthly distributions. The full value investors receive from these funds is equivalent to the face value of all the underlying holdings plus the sum-total of all yield payouts over the life of the fund.

Maturity-Date ETFs solve a conundrum for fixed-income investors, who in the past had to make a choice between two imperfect options: bond funds or individual bond issues.

Maturity-date bond funds offer the best of both worlds, so to speak. They allow investors to hold to maturity and ride out fluctuations in the yield curve, knowing that when the time comes, they can collect the full face value of the fund. And they get around the concentration risk inherent in holding individual bonds by holding a diversified basket of bond issues that come due in a given calendar year.


http://seekingalpha.com/article/253690-a-guide-to-maturity-d......

rk
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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68486 of 75379
Subject: Re: Maturity Date Bond ETF's Date: 2/19/2011 9:41 AM
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Interesting, but the author also doesn't point out that while the cost is low, .24%, for a 2017, that's still more than double for BND .11% which has an average duration of about 5 years.

Hockeypop

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Author: loveoldcars Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68487 of 75379
Subject: Re: Maturity Date Bond ETF's Date: 2/19/2011 9:45 AM
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that's still more than double for BND .11% which has an average duration of about 5 years.

But, BND never matures, so one loses the advantage of holding to maturity, like indiv. bonds. Can be a large loss sometimes...

rk

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Author: MajorMajor78 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68488 of 75379
Subject: Re: Maturity Date Bond ETF's Date: 2/19/2011 10:11 AM
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Very interesting, I havn't seen that before. A lot of people hold a bond ETF/Mutual with no intention of ever selling. It's there as an anchor on the portfolio or as a source of income in retirement.

Personally I'd love to be able to ladder maturing bond ETF's. Get the diversity I can't afford independantly in a single security or in the case of a ladder a set of securities. The only thing I don't like is that the second half of this sentence, "The full value investors receive from these funds is equivalent to the face value of all the underlying holdings plus the sum-total of all yield payouts over the life of the fund." If the fund does not pay dividends on a regular basis then you can bet the manager is re-investing those payments to get more profit for him and his compnay. Essentially they are charging you twice, once for the expense ratio and once your opportunity cost of the periodic interest payments. You lose out on the power of compounding. Dirty little hidden fee there.

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Author: loveoldcars Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68489 of 75379
Subject: Re: Maturity Date Bond ETF's Date: 2/19/2011 10:22 AM
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Hi Guys,

Here's a 'follow-on' article posted on the bond bde. (where I also put the OP).

http://seekingalpha.com/article/246039-maturity-targeted-bon...

It explains how the YTM is 'locked-in' for each investor.

rk

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