How ETF bond ladders can help give client portfolios a boost

• Bond laddering is a way for advisors to help clients access yields currently available.
• iBonds® ETFs make bond laddering simpler and more time-efficient vs. having to research, purchase and track individual bonds.
• In addition to laddering, iBonds ETFs can be used efficiently to reinvest coupons or funds from called bonds, and can be used to seek income for a specified future date.

With interest rates near the highest levels in 15 years, savvy advisors are building bond ladders to help clients access these yields.¹ Bond laddering is a useful method to invest in the bond market. The idea is you buy a series of bonds that mature in consecutive calendar years. Then when the shortest-duration bonds mature, you buy the following year. To set up a 5-year bond ladder with $1,000 to invest, for example, you would buy five bonds for $200 each that mature in 2024 to 2029. Once the 2024 bonds mature, you can stay invested by buying a 2030 bond with the proceeds.

iBonds ETFs enable advisors to build bond ladders without the time-consuming and potentially costly effort to research and purchase the individual bonds. You can buy equal amounts of each ETF for clients. Each iBond ETF matures in December of its calendar year. When it matures, you can then purchase the next calendar year, as illustrated below.

iBonds ETFs make it easy to scale bonds across multiple client accounts. Not every bond trades every day, so when setting up client accounts with individual bonds, you may be getting different CUSIPs. Managing the cash flows, combing through bond inventory to stay fully invested can be a full-time job. Even when outsourcing to a fixed income separate account manager, not every client account meets the minimum size, which typically can be $250,000 or more.

In contrast, iBonds ETFs allow for a more consistent experience. All clients own the same CUSIPs. Since iBonds ETFs trade on an exchange like a stock, they are block tradeable and limit orders can be used.

In addition to laddering, iBonds ETFs can be used to:

• Hold iBonds ETFs to match outgoing cash flows - Let’s say your client wants to buy a vacation home in three years or pay their grandkid’s college tuition over the next four years. iBonds ETFs can be used to seek to collect some income while you wait for the ETF to mature at a specific time.
• Reinvest Coupons or Called Bonds - Use in conjunction with individual bonds to put coupons or calls to work. Instead of hunting for odd lots of small bonds, you can just sweep the extra cash into a corresponding iBonds ETFs.

iBonds ETFs are now available in US Treasuries, TIPS, municipals, investment grade and high yield corporates. Check out the iBonds Laddering Tool as a way to get started with a bond ladder. This tool will allow you to see yields, durations, and the number of bonds across different bond sectors.