“We believe the pre-end period will be filled with unprecedented opportunities for profit.” — New Yorker cartoon

When we published “Not Built for This: The Argument for Infrastructure Investing in an Unstable Climate” in January 2025, our thesis was straightforward: climate destabilization would drive urgent, massive infrastructure spending as aging systems fail under environmental pressures they were never designed to withstand. Just two months later, this argument has been dramatically reinforced—not despite, but because of aggressive federal climate policy rollbacks.  The New York Times offered this assessment on March 2:

In a few short weeks, President Trump has severely damaged the government’s ability to fight climate change, upending American environmental policy with moves that could have lasting implications for the country, and the planet… He is abandoning efforts to reduce global warming, even as the world has reached record levels of heat that scientists say is driven largely by the burning of fossil fuels. Every corner of the world is now experiencing the effects of these rising temperatures in the form of deadlier hurricanes, floods, wildfires and droughts, as well as species extinction. (David Gelles, Lisa Friedman and Brad Plumer, ‘‘Full on Fight Club’: How Trump Is Crushing U.S. Climate Policy,” NYT.com, 3/2/25)

The paradox is stark: as the new administration dismantles climate mitigation frameworks at unprecedented speed, it simultaneously accelerates the timeline for critical adaptive infrastructure investments. This retreat from prevention doesn’t eliminate the problem; it merely shifts financial responsibility while compressing the timeline for unavoidable infrastructure spending.

The Systematic Dismantling of Climate Policy

Since January 20, 2025, we’ve witnessed a calculated, comprehensive rollback of climate policies that extends far beyond typical administrative transitions. These actions don’t merely adjust priorities—they represent a fundamental rejection of climate science and preparation:

1. Withdrawal from International Frameworks

• Formal exit from the Paris Climate Accord, eliminating pressure to align infrastructure projects with global emissions targets
• Withdrawal from key global climate assessment initiatives, removing the U.S. from international collaborative planning

2. Rescinding Financial Commitments

• “Pausing” disbursement of approximately $294 billion in unallocated Infrastructure Investment and Jobs Act (IIJA) funds
• Freezing distribution of Inflation Reduction Act (IRA) funds earmarked for grid modernization and clean energy
• Signaling intent to eliminate electric vehicle subsidies and incentives

3. Dismantling Environmental Protections

• Initiating a review of the EPA’s authority to regulate greenhouse gases under the Clean Air Act
• Revoking requirements for federal contractors to disclose emissions, weakening corporate accountability
• Rolling back vehicle emissions standards implemented by the previous administration

4. Accelerating Fossil Fuel Expansion

• Declaring a “national energy emergency” to fast-track oil, gas, and coal production on federal lands
• Creating a “National Energy Dominance Council” to expedite fossil fuel infrastructure development. (Really? This so sounds like the invention of a roomful of junior high boys.)
• Encouraging energy exploration in previously restricted areas, including the Outer Continental Shelf

5. Erasing Climate Information Infrastructure

• Removing climate data from federal websites, including EPA’s climate section and the Climate and Economic Justice Screening Tool
• Dismissing approximately 800 employees from the National Oceanic and Atmospheric Administration (NOAA)
• Targeting probationary workers at the National Weather Service, potentially impacting up to 375 employees
• Instructing agencies like the National Disaster Preparedness Training Center to remove or revise references to “climate change” in course materials
• Canceling interconnection innovation webinars on grid efficiency crucial for decarbonization

This systematic erasure of climate science from government operations creates a dangerous knowledge gap precisely when more accurate information is needed for planning resilient infrastructure.

These are not the actions of men confident of their place in history. These are not the actions of men who believe the evidence is on their side. These are the actions of people who suspect that their time is short, their cause hollow and their hold weak.

“If the law is against you, talk about the evidence,” said a battered barrister “If the evidence is against you, talk about the law, and, since you ask me, if the law and the evidence are both against you, then pound on the table and yell like hell.” Carl Sandburg, “The People, Yes,” (1936)

And so, they pound the table and yell like hell. The question for people-as-investors is how best to respond, which is rather different from how people-as-citizens-of-the-planet might choose to respond.

The Infrastructure Investment Paradox

These policy shifts don’t negate the structural need for climate-resilient infrastructure—they amplify it. By abandoning mitigation efforts, the physical impacts of climate change (floods, heatwaves, storms) will accelerate, reinforcing the investment case for adaptive infrastructure while shifting financial responsibility to states, municipalities, and private investors.

Stuff that you might need to think about.

1. Accelerated Timeline for Adaptive Infrastructure

As federal climate guardrails disappear, physical impacts will intensify more rapidly, creating urgent demand for:

• Grid Resilience: Power systems require immediate hardening against extreme weather. With federal programs paused, private utilities face mounting pressure to fund upgrades independently. Heat-resistant transformers, underground lines, and micro-grid technologies will see surging demand.
• Water Systems: Coastal states now face the full financial burden of funding seawalls, stormwater systems, and water treatment facilities as federal resources evaporate. Municipal bonds for water infrastructure are already seeing increased issuance.
• Disaster Response Infrastructure: Demand for wildfire-resistant materials, flood barriers, and emergency response systems is growing exponentially as federal climate-resilience programs diminish.

2. Energy Sector: Conflicting Investment Signals

The energy infrastructure landscape has bifurcated dramatically:

• Fossil Fuel Infrastructure: Midstream energy transport, refineries, and storage projects benefit from regulatory rollbacks and the “national energy emergency” declaration. (A bunch of MLP funds, such as Alerian Energy Infrastructure ETF, likewise.)
• State-Led Clean Energy: Despite federal headwinds, states with renewable portfolio standards continue advancing clean energy projects, creating investment opportunities in jurisdictions with clear climate commitments. Texas, being Texas, is committing itself to nuclear power despite the mismatch between immediate needs and the 10-20 year lead time on new nuclear. But it’s Manly Energy.
• Corporate-Driven Renewables: Major corporations with net-zero pledges are increasing private renewable procurement, driving demand for transmission infrastructure independent of federal support.

3. Public-Private Partnerships (P3): The New Financial Reality

With federal funding uncertain and climate impacts intensifying, P3s have evolved from preference to necessity:

• State governments are increasingly turning to private capital for essential infrastructure that can no longer wait for federal funding
• Toll roads, water systems, airports, and smart-city technologies represent growing P3 opportunities
• Private investors face both higher potential returns and greater demands for speed as climate-driven infrastructure failures accelerate

4. The Climate Data Vacuum: A Private Sector Opportunity

The removal of federal climate data resources has created an immediate market for private climate analytics:

• Insurance companies, utilities, and municipalities now lack critical federal climate projection tools.
• Private climate risk assessment firms have seen valuation increases of 30-40% since January.
• Infrastructure investors increasingly require specialized climate risk analysis previously provided by federal agencies.

While not relevant to regular investors, the option of exploring investments in private climate risk firms might be promising for advisors and more sophisticated professionals.

Investment options

Three broad categories of options are available.

• Infrastructure funds and ETFs. In January we highlighted a half dozen funds that invest broadly across infrastructure classes, including Centre Global Infrastructure Fund (DHIVX) and Global X U.S. Infrastructure Development ETF (PAVE). In February, after reader requests, we added a spotlight on promising water infrastructure options, including Invesco Water Resources ETF (PHO) and Fidelity Sustainable Water (FLOWX).  We’ll only add here that in the three turbulent months since the election, just two infrastructure funds have posted positive returns: BNY Mellow Global Infrastructure Income ETF (BKGI) and Lazard Global Listed Infrastructure (GLFOX).
• Municipal Bonds: Coastal states are accelerating the issuance of resilience bonds, with New Jersey and Florida leading in new climate-adaptive municipal debt.
• Private Equity: Climate-resilient real assets—data centers, logistics hubs, and renewable power—are attracting premium valuations, with several major PE firms launching dedicated climate-resilience infrastructure funds.

The Investment Imperative: Profit from Prevention’s Failure

The climate pendulum has swung dramatically from mitigation to adaptation, creating a compelling investment case. The current administration’s policies, while undermining climate stabilization efforts, inadvertently strengthen the most profitable segment of climate infrastructure investing: emergency adaptation.

Infrastructure investors now face a stark reality: government retreat from climate science doesn’t make climate change disappear—it merely privatizes the response. As sea levels rise, storms intensify, and temperatures climb, the infrastructure built for yesterday’s climate will fail at accelerating rates. The companies and investors positioned to rebuild these systems for tomorrow’s hostile climate stand to capture unprecedented value.

The darkly comic New Yorker cartoon that opened our January report has proved prescient more quickly than expected. While the current trajectory may indeed lead to “end-of-the-world scenarios rife with unimaginable horrors” with a third of the US nearly uninhabitable,  the intervening period of infrastructure adaptation has already begun to generate some social and financial good.

This article updates “Not Built for This: The Argument for Infrastructure Investing in an Unstable Climate” (January 2025) with policy developments through March 2025.

Exchange-traded funds (ETFs) that are designed to be used in bond ladders with target maturities have been around for over a decade. They come in Corporate Debt BBB-Rated, High Yield, Inflation-Protected, U.S. Treasury General, and Municipal Bond Lipper Categories. They have the advantages of simplicity, diversification, liquidity, flexibility, and low expense ratios. The disadvantages are that an active investor may be able to selectively pick higher-yielding bonds, some of the bonds held in the ETF may be callable, the dividends are not as predictable as individual bonds, and in the final year the bonds that have matured are invested in Treasury bills.

Invesco manages Bulletshares bond funds and BlackRock manages iShares iBonds. A summary is shown in Table #1. Included in the iShares iBond ETFs totals are ready-built bond ladders (LDRH, LDRI, LDRC, and LDRT) which are beyond the scope of this article as well as the inflation-protected bonds which are less than two years old.

Table #1: ETF Bond Ladder Funds

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Overview

For a great article on Bond Ladder ETFs, I refer you to Bond Ladder ETFs Can Help Investors Climb Higher at Morningstar by Saraja Samant. Defined-maturity ETFs buy bonds that mature in the year the ETF terminates, returning its proceeds to investors. Ms. Samant shows an example of how ladders built with iShares iBond and Invesco BulletShares would have performed against an aggregate bond fund.

The BlackRock iShares iBonds ETFs website describes their bond ETFs as:

“iBonds exchange-traded funds (“ETFs”) are an innovative suite of bond funds that hold a diversified portfolio of bonds with similar maturity dates. Each ETF provides regular interest payments and distributes a final payout in its stated maturity year, similar to traditional bond laddering strategies. However, the funds’ unique structure is designed to help investors easily build bond ladders with only a handful of funds.”

The net acquisition yield provides a yield estimate, net of fees, and market price impact if held to maturity. They do not seek to return any predetermined amount at maturity or in periodic distributions. The prospectus states that they expect that an investment in the funds, if held through maturity, will produce aggregate returns comparable to a direct investment in a group of bonds of similar credit quality and maturity.

ETF Bond Ladder Performance by Lipper Category

This section compares the total return performance of iShares iBonds maturing in 2028 for high yield, corporate BBB-Rated, U.S. Treasuries, and municipals bond categories. It shows the benefits of diversification. Municipal Bond Ladder ETFs have outperformed Treasuries over the past three years.

Figure #1: iShares iBonds Performance for ETFs Maturing in 2028

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Figure #2 compares the yields of Invesco BulletShares and iShares iBond ETFs for the Corporate, Municipal and High Yield Lipper Categories.

Figure #2: Comparing Yields of ETF Bond Ladders for Various Lipper Categories

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Corporate BBB Rated Yield Changes Over Time

Figure #3 shows the dividend yield for the past three years from FinanceCharts for the Invesco Corporate Bond BulletShares with maturities from 2025 through 2030. Now is probably a good time to begin locking in higher yields.

Figure #3: Dividend Yield Over Time for Invesco BulletShares Corporate BBB-Rated Debt

Source: Author Using FinanceCharts.com

Financial Goals

We have established relationships with Financial Advisors at Fidelity and Vanguard. If I were to pass away before my wife, I want her to turn over the rest of the accounts to them to manage for income. I want to keep things as simple as possible but no simpler.

Whether bond ladders or ETF Bond Ladders are right for an investor depends upon their financial goals. I view my Bucket #2 conservative Traditional IRAs as a place to withdraw funds if and only if the stock market is not doing well enough to withdraw from other sources. I want to maintain enough in this investment bucket to last a lifetime by replenishing it when stocks are high or withdrawing at a sustainable rate taking into consideration inflation.

Over full cycles, core bond, investment grade debt, high yield, and multi-sector debt have had the highest returns, yields, and drawdowns. These are the categories that I want to use to build bond ladders where the funds are not needed for several years, and they get more conservative over time. I want to own Corporate Debt BBB-rated bonds without doing the research to pick individual bonds.

I collect the dividends in money markets and make withdrawals as needed. That the dividends of bond ladder ETFs are not as predictable as individual bonds does not concern me. Finally, that bond ETFs invest the funds from bonds that matured in Treasury bills in the final year is a plus for me because I want them to get more conservative as they mature, especially in the year that I choose to withdraw them. I also like the liquidity.

Corporate Debt BBB-Rated Bond Ladder ETFs

Table #2 provides a summary table comparing Invesco Bulletshares and iShares iBonds in the Corporate Debt BBB-Rated Lipper Bond Category. It is remarkable how similarly the Bulletshares and iBonds perform. I would be comfortable with either. During the past year, these funds have returned 4.1% to 5.2% and currently yield between 4.5% and 5.3%.

Table #2: Corporate Debt BBB-Rated Bond Ladder ETFs – (3-Year Metrics)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Figure #4 shows the total return performance of the corporate debt BBB-rated Bond Ladder ETFs over the past three years. Stocks and bonds did poorly in 2022. Bond ETFs maturing in two years had a drawdown of about 6% while bond ETFs maturing in six years had a drawdown of about 14%.

Figure #4: Corporate Debt BBB-Rated Bond Ladder ETFs (3 Years)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

High Yield Bond Ladder ETFs

High-yield bonds can have large drawdowns during recessions. I favor shorter duration high yield bonds. Over the past three years, these bond ETFs had drawdowns between 7% and 15%. During the past year, they have returned 7.4% to 9.3% and currently yield 5.3% to 7.1%.

Table #3: High Yield Bond Ladder ETFs – (3-Year Metrics)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Figure #5 shows that these short-duration high-yield bonds have had higher returns than corporate BBB-rated bond ETFs and with roughly comparable drawdowns.

Figure #5: High Yield Debt Bond Ladder ETFs (3 Years)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

U.S. Treasury Bond Ladder ETFs

For comparable maturities, U.S. Treasuries have not had a much lower drawdown than investment-grade bonds, or even high-yield bonds. They have been slower to recover from 2022.

Table #4: Treasury Bond Ladder ETFs – (3-Year Metrics)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Figure #6: Treasury Bond Ladder ETFs (3 Years)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Municipal Bond Ladder ETFs

Municipal bond funds have done well considering their low yield. Fidelity has a Calculator for Fixed Income Taxable-Equivalent Yields for Individual Bonds, CDs, & SPDAs. The link is provided here. I use municipal bonds as long-term accounts where I want to keep taxes low. I am considering if there is a home for municipal Bond Ladder ETFs in my portfolio.

Table #5: Municipal Bond Ladder ETFs – (3 Year Metrics)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Figure #7: Municipal Bond Ladder ETFs (3 Years)

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Closing

This research has helped me to decide when the next rungs on my bond ladder mature that I will be investing in bond ladder ETFs. Which ones? Corporate BBB-rated Bond Ladders will be the mainstay. I am considering a rung of high yield in the couple of years since the economy is strong and default risk is relatively low. I can see where a bond ladder of municipal bond ETFs can fit into a long-term tax efficient account as well.

I wrote Business Cycle: Boring Bond Funds at Seeking Alpha in June 2019, describing the yield curve and that conditions were favorable to increase allocations to bonds. In hindsight, I believe that a “soft landing” would have been achieved had it not been for the COVID-induced recession. The conservative accounts that I manage are now fully invested in bonds. In this article, we will look at “Spicy Bond Funds” for those who are interested in high yield and safety. Spicy, but not too hot, and easy to manage!

There are several important considerations for investing in bonds. First, the S&P 500 earnings yield is less than the 10-year Treasury which has not occurred since the Dotcom Bubble. The stock market is overvalued by most metrics, and the return on the S&P 500 has slowed to 1.4% over the past three months. Second, the risk premium for duration and investment-grade bonds is low. This favors shorter-duration bonds with opportunities in investment-grade bonds. Third, inflation is sticky and expectations for higher inflation are rising. Fourth, policy uncertainty about tax cuts, tariffs, deporting immigrants, and spending cuts are adding to volatility and the long end of the yield curve is flattening.

I use about twenty metrics from Mutual Fund Observer to rank over three hundred bond funds by Risk, Yield, Quality (including duration), Trends, and Returns weighted for a conservative investor such as myself to identify favorable Lipper Categories and high-performing funds. I preselected the funds based on risk-adjusted return and Fund Family Rating, among other factors. Performance during the COVID bear markets is one of the twenty metrics used in my ranking system. I use the MFO Great Owl rating to increase the “Rank” of funds and the “Three Alarm” rating to punish those with deteriorating performance. I use “Bullish” and “Bearish” ETF bond screens at Fidelity and Relative Strength Index (RSI) from Seeking Alpha to “bend” my rating for shorter-term momentum.

Risk Premium

The Core, General, and Corporate BBB-rated funds that I track had an average annualized return of 4.7% over the full cycle from November 2007 until December 2019 with an average APR of 0.6% during the Great Financial Crisis bear market. This compares to 8.4% for the S&P 500 over the same full cycle and -41.4% during the bear market. The bonds have a 30-day yield of 4.8% compared to 1.2% for the S&P 500. Bonds are subject to inflation, duration, and quality risk. Uncertainty can also impact bond performance.

Inflation Risk

Figure #1 shows the expected inflation to be around 2.6% in the next 5 years, on average as estimated by the breakeven inflation rate. It has risen from a recent low of 1.9% in September as inflation has proven to be sticky and concerns over tariffs. The consumer price index came in higher than expected for January increasing 3.0% over the past twelve months, and 0.5% for the past month. In reaction, the yield on the 10-year Treasury jumped to 4.64%.

Figure #1: 5-Year Breakeven Inflation and Yield on 10-Year Treasuries

Source: Federal Reserve Bank of St. Louis FRED Database: 5-Year Breakeven Inflation Rate [T5YIE]; Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity [DGS10]

The Republican administration has suggested opening more federal land for oil leases. It takes time and money to explore these fields, evaluate the results, build the infrastructure, and drill the production wells. I don’t expect the benefits to lower inflation in the near term especially when the $72 price per barrel provides little incentive to invest.

Duration Risk

I use the yield curves from the 2004 to 2007 period to demonstrate duration risk. Bond values are inversely related to yields, and longer durations are more sensitive to changes in the yield. During this period, yields on the 10-year Treasury fluctuated around 4.5% within a range of +/- 0.6%. The dark line is the yield curve at the time of this writing. I expect it to be range bound between roughly 4.0% and 5.5% until inflation is under control and there is more clarity on the budget deficit.

Figure #2: Anatomy of the Yield Curve and Inflation (2004 to 2007)

Source: Author Using St. Louis Federal Reserve FRED Database

Pola Rocha at Investopedia explains why yields on longer duration bond rates are likely to stay higher for longer in The Treasury Secretary Says Trump Wants Long-Term Rates to Fall—It May Take a While. The Federal Reserve controls short-term rates, but long-term rates are driven more by inflation and government borrowing among other factors. Since the middle of September, the yield on the 10-year Treasury rose from 3.6% to 4.8% before declining to 4.4% recently. Today, it has risen back above 4.6% over hotter-than-expected inflation readings for January.

Preston Caldwell, Hong Cheng, and Dominic Pappalardo at Morningstar explain in Why Long-Term Interest Rates Aren’t Falling—And What That Means For Your Portfolio that the biggest driver of higher inflation expectations is probably higher expectations for economic growth and the strength of the labor market leading to more upward pricing pressure. They suggest investors should consider moderately extending the duration of their portfolios to capture potential gains despite the likelihood of further steepening. They favor intermediate-term Treasuries.

Credit Quality Risk Premium

Figure #3 is based on median yields for bonds from Fidelity. For investing in investment grade bonds with a 3-year duration, an investor is receiving a historically low premium of only 0.5%, and to invest in Treasuries with a 10-year duration instead of a 2-year duration, that investor receives the same yield with no duration premium. I find the one-to-four-year duration in investment-grade debt to be attractive for taxable bonds.

Figure #3: Median Yield Curves and BBB to Treasury Spread

Source: Author Using Fidelity Fixed Income Data

Policy Uncertainty

The policy changes from the new administration add uncertainty regarding tariffs, inflation, tax cut stimulus, spending cuts, budget deficits, and national debt levels. The Federal Reserve’s continuing Quantitative Tightening adds supply of long-term debt.

Portfolio Assessment

I created Table #1 to show a comprehensive snapshot of how bond funds are performing and to better understand how I am invested. They are sorted from my highest ranked Lipper Category to lowest. The highest-ranked five funds are shown for each Lipper Category. The Tier One Categories are those with a higher risk-adjusted yield with better recent performance. They tend to have shorter durations. Tier Two Categories step further into the risk spectrum with slightly longer durations and lower quality, but still have a high risk-adjusted yield. Tier Three Categories are those with longer durations and lower risk-adjusted yields. I adjusted the yields and returns of tax-exempt funds higher to be the tax equivalent for an investor in the 22% tax bracket.

Of the bond funds that Fidelity, Vanguard, or I manage, 21% are in Tier One, 12% are in Tier Two, and 48% are in Tier Three with another 18% in bond ladders. Fidelity and Vanguard manage the more aggressive side of investments and use more core bond funds, while I manage the conservative side of Bucket #2 for the intermediate term. The yield on the taxable bond funds that I manage is 5% excluding the bond ladders. I built the bond ladder mostly in Treasuries and Agency bonds with yield to maturity of 4% or higher but with low dividends. I will be investing for a sustainable higher yield as the bonds mature.

Table #1: Metrics for Lipper Categories with High Yields

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Strategies For 2025

Barbell Strategy

The barbell strategy is a tactical strategy that involves buying short-term and long-term bonds depending upon the shape of the yield curve but nothing in between. Steve Johnson describes the barbell strategy in ‘Barbell’ Effect Helps Fixed Income Newcomers Usurp Traditional Bond Funds published in the Financial Times. Investors are moving away from actively managed mutual funds that sit in the middle to lower cost, actively managed funds on one end, and alternative vehicles, such as private credit and infrastructure debt funds, at the other. Of the top five bond funds per Lipper Category that I track, 75% are actively managed and 65% are exchange-traded funds.

Bond Ladder Strategy

The bond ladder strategy is an all-weather strategy that invests in bonds that mature in given years in order to produce a steady stream of income.  The main advantage is that rates can be locked in when high. The disadvantages of bond ladders are the high barrier to entry, less liquidity, default risk, and the risk of rates rising. I have about 18% of my bond investments in individual bonds (rungs) that mature each year (spacing).

Exchange-traded funds that are designed to be rungs on an ETF bond ladder have been around for over a decade. Invesco manages Bulletshares bond funds and BlackRock has iShares iBonds that pay a dividend and mature in a particular year. They come in the flavors of Corporate Debt BBB-Rated, High Yield, Inflation Protected, U.S. Treasury General, and Municipal Bonds. Table #2 shows the number of funds and assets under management of these funds.

Table #2: Bond Ladder ETFs.

Source: Author Using MFO Premium fund screener and Lipper global dataset.

They have the advantages of simplicity, diversification, liquidity, and flexibility. The disadvantages are that an active investor has the advantage of being able to selectively pick higher-yielding bonds, the dividends are not as predictable, and in the final year bonds that have matured are reinvested in Treasury bills.

Author’s Strategy

As a retiree, I am interested in stability and a steady stream of income. As I have written previously, traditional portfolios with a stock-to-bond ratio of 60/40 are expected to have below-average returns of around 6% in the coming decade compared to 8.3% during the 2010 decade. I see opportunities in short to intermediate-term investment-grade credit. I have been shifting from core bond funds in Tier Three to short and short-intermediate investment grade bond funds in Tier One and Two. I have been spicing up my portfolio with lower risk, higher yielding funds in the Loan Participation, High Yield with 1-to-3-year durations, and multi-sector bond funds.

I avoid high-yielding funds that require a significant amount of time tracking the industries and management changes as well as hot new funds without at least three years of performance history.

Janus Henderson Aaa Clo ETF (JAAA)

One of the funds that I have been buying is the Janus Henderson Aaa Clo ETF (JAAA) in the Loan Participation category. It is not the spiciest fund in the spice rack. The reasons that I like it are that it invests 95% in “AAA” bonds, only has 15% in the top ten holdings, has $20B in AUM, 92% is securitized, and expense ratio of 0.21%. During its four-year life, it has returned 4.6% annually with a maximum drawdown of 2.3%. It has a TTM yield of 6.32%. It has an MFO Risk of “1” for “Very Conservative” and is in the top quintile for risk-adjusted performance in the loan participation category. It has a FactSet rating of A, and a 5-star Morningstar rating. It is not without its risks though, with 58% invested in South America, and with 68% of its investments classified as long-term. It is not a tax-efficient fund, so I own it mostly in Traditional IRAs.

Table #3 compares the highest-performing loan participation funds by my ranking system.

Table #3: Bond Ladder ETFs – Three-Year Metrics

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Figure #4 shows that while JAAA does not have the highest return, it has the lowest drawdown. That’s my kind of spice!

Figure #4: High-Performing Loan Participation Funds

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Closing

Are you looking for a good place to start? Below is a list of some of the exchange-traded funds that my system is telling me to look at. I own shares in Janus Henderson AAA CLO ETF (JAAA), iShares Short Duration Bond Active ETF (NEAR), and iShares 0-5 Year High Yield Corporate Bond ETF (SHYG). Invesco Global ex-US High Yield Corporate Bond ETF (PGHY) interests me but is not yet on my radar screen.

Table #4: Bond Ladder ETFs

Investors are increasingly skittish. They are warned frequently that the top of the US equity market is feverishly overpriced and might bring the rest down when it falls. And, too, chaos in the national government is making them worried if not yet ready to abandon their lovelies. Interest is growing in finding ways to book gains independent of the stock market. One manifestation of that is the insane growth in economically inefficient buffered funds, and another is the rising interest in securing access to private equity. “Private equity” describes the wide world of corporations whose shares are not available to the public; they’re held by insiders and select groups of outsiders. Reportedly, private equity investments have returned about 5% more per year, over the 21^st century, than have public stock investments (CAIA Association, “Long-Term Private Equity Performance: 2000 to 2023,” 4/23/2024). As with the opportunity to invest in hedge funds, the promise is just too great to ignore.

Our advice: ignore it.

The story of Firsthand Technology Value Fund (TVFQX reincarnated as SVVC) represents one of the most dramatic cycles of boom and bust in the investment fund world, transforming from a high-flying technology mutual fund with billions in assets to a shell of its former self with minimal assets and a share price of mere pennies. This comprehensive account documents its meteoric rise, subsequent struggles as a private equity investor, and ultimate collapse. Their struggles offer some hint of the undiscussed risks.

The Golden Era: Firsthand’s Phenomenal Rise in the 1990s

Firsthand Technology Value Fund began its journey in 1994 when Kevin Landis, who would become one of Wall Street’s most celebrated technology investors during the dot-com boom, and Ken Kam founded Firsthand Capital Management. Their edge was that, as successful entrepreneurs in tech and biotech, they had an insider’s firsthand understanding. The fund started as an open-end mutual fund focused on technology investments and quickly became a standout performer in the burgeoning tech sector.

During the late 1990s, the fund delivered extraordinary results, with returns of 59.23% annually from 1994-1999. This performance culminated in a stunning 190% gain in 1999 alone, at the height of the tech bubble. With these spectacular returns, the fund’s assets under management swelled to over $4 billion, and its NAV soared beyond $130 per share. Kevin Landis became a media darling and the “go-to” expert for technology investment commentary, appearing regularly on financial news networks.

The Bursting Bubble: 2000-2010

When the tech bubble burst in 2000, Firsthand Technology Value Fund suffered catastrophic losses along with most technology-focused investments. Over the next three years, the fund’s NAV plummeted by 78%, and its assets shrank dramatically to less than $500 million. The downward spiral continued throughout the decade, with assets dwindling to under $150 million by mid-2010.

This period represented a fundamental challenge to the fund’s investment thesis and management approach. Like many formerly high-flying tech funds of the era, Firsthand struggled to adapt to the new market reality after the dot-com bubble burst.

To this point, the fund was, at worst, just another perfectly ordinary tech disaster, like dozens of its peers. Human error, human arrogance, the bubble pops.

I know there’s a proverb that says, ‘To err is human’ but a human error is nothing to what a computer can do if it tries.” Agatha Christie, Hallowe’en Party (1969)

‘To err is human, to really foul things up requires a computer’. Senator Soaper, the comic creation of Bill Vaughan, “Senator Soaper says” (1969)

Investing in publicly traded securities leads to perfectly ordinary disasters. To really screw things up, add private equity.

Transformation to a BDC: The 2011 Conversion

Facing continuing challenges with the open-end mutual fund structure, the Board approved a significant structural change in 2010-2011. On April 18, 2011, Firsthand Technology Value Fund converted from an open-end mutual fund to a business development company (BDC), structured as a closed-end fund focused primarily on investing in private companies. Like the ETFs we wrote about in “Liquid Promises, Illiquid Reality” (March 2025), the magic was going to be provided by private equity.

While our primary focus is to invest in illiquid private technology and cleantech companies, we may also invest in micro-cap publicly traded companies … We expect to be risk-seeking rather than risk-averse in our investment approach. We expect to make speculative venture capital investments with limited marketability and a greater risk of investment loss than less speculative investments. We are not limited by the diversification requirements applicable to a regulated investment company … (Firsthand Technology Value Fund, Inc., Form 10-K/A, FY 2023)

Here’s private capital in 119 words:

You’re a tiny company with a cool product. You’re new at this. You want to grow but you don’t have the cash or expertise to pull it off, and so you invite in a White Knight. Brilliant, experienced entrepreneurs with a bucket of cash who promise you’ll be The Next Google. You sell much or all of your company to them for a price they tell you is more than fair. They promptly start fixing you. The unspoken part is that they will do to your company whatever it takes to maximize their profit, which might be carefully nurturing its growth, slapping on a coat of paint and flipping the company, or plundering it and filing for bankruptcy.

This conversion proved controversial from the start. Financial columnist Chuck Jaffe of MarketWatch issued a stark warning about the conversion, calling it a move “likely to gut shareholders like fish” and suggesting that “they’d be better off with a liquidation, which Firsthand has done to some of its other miserable funds” (“Chuck Jaffe: Don’t experience this bad deal ‘Firsthand,’” Seattle Times, 8/10/2010). Two notes there: (1) that was the nicest thing Chuck said about the manager in the course of this 2010 article and (2) it was cited by Tech Value’s largest shareholder in a 2013 filing with the SEC. Despite these warnings, the conversion proceeded, and SVVC began its new life as a BDC with an NAV of $94 million, including $75 million in cash.

The Facebook Effect: A Brief Illusory Revival

In October 2011, SVVC announced a $1.6 million investment in Facebook through a private transaction. As Facebook prepared for its highly anticipated IPO, the investment represented a rare opportunity for public market investors to gain exposure to the pre-IPO social media giant.

By April 2012, Facebook represented 26% of SVVC’s assets, and investor excitement pushed the fund’s share price to more than $45 per share, representing a massive premium over its last reported NAV of $24.56. Capitalizing on this enthusiasm, SVVC conducted a secondary offering, issuing 4.4 million shares at $27 per share, more than doubling the fund’s size. You would think that investing in a FAANG when it was still a Baby Tooth would be a sure road to riches. Not so much. The Facebook-driven euphoria proved short-lived. The social media giant’s IPO was widely regarded as disappointing, and SVVC suffered as its largest holding underperformed expectations.

The decision to bet the ranch on private equity came with vast and predictable risks:

1. Valuation uncertainty, where the nominal value of a position is untested in the market. At the base you’re dependent on “welllll … our experts are pretty sure that we could someday sell this to someone for something like ….  But when? Don’t know.”
2. Illiquidity, especially for tiny companies with untested models in periods of …
3. Market volatility, which was rampant.
4. Interest rate uncertainty, where rising rates and fear of a recession reduced the availability of credit for merger & acquisition activities, and limited the fund’s ability to cash out of positions and move on.
5. Potential misalignment with other private equity investors: private equity investors are a famously predatory bunch with a reputation for looking to gut their acquisitions as quickly and thoroughly as possible. Eileen O’Grady, a researcher at the Private Equity Stakeholder Project, reports: “A review by the Private Equity Stakeholder Project has found that private equity firms played a role in eleven of the 17 (65%) largest US corporate bankruptcies during the first six months of 2024 (bankruptcies with liabilities of $1 billion or greater at the time of filing).” If you’re interested in strengthening a company and your colleagues are interested in looting it, you’re going to have a problem.

Management decisions during this period came under intense scrutiny. For instance, the fund passed on buying SolarCity shares at $8 in its December IPO, despite having previously valued the company’s restricted shares at $16 – a decision that proved costly as SolarCity’s shares subsequently traded at around $20.

Shareholder Activism and Liquidation Attempts

By 2020, dissatisfied shareholders began organizing. A group called “Save Firsthand Technology Shareholders” proposed “ceasing new investments and pursuing an orderly liquidation or termination of the fund,” noting that SVVC’s NAV had fallen 60% from its recent high.

In May 2021, shareholders were urged to vote in favor of terminating the investment advisory and management agreements between SVVC and Firsthand Capital Management. A vocal shareholder, Rawleigh Ralls, who owned approximately 3.7% of SVVC common stock, pointed out that Firsthand Capital Management had collected $33.8 million in fees over a nearly ten-year period during which the SVVC stock price declined by 78% (Globe NewsWire, 5/7/21).

The Final Collapse

The fund’s decline accelerated dramatically in recent years. As of December 31, 2022, SVVC reported net assets of approximately $30.6 million and then, a year later, $1.3 million, a staggering 95.8% decline in a single year. The market value tells an even bleaker story, with SVVC trading at just $0.06 per share in February 2025, giving the fund a minuscule market capitalization of just $439,582. Management delisted from the NASDAQ, then attempted to delist as a BDC and liquidate the fund in October 2023. They appear to have failed perhaps because you can’t liquidate unless you can convert your illiquid positions into cash. The fund keeps limping along with a combination of optimistic rhetoric (about microcap and private equity opportunities) and fatalism (“Throughout the quarter, the Fund continued its efforts to manage its portfolio prudently, including working with its portfolio companies and their management teams to seek to enhance performance and uncover potential exit opportunities,” filing on 11/14/24).

Conclusion: Lessons from a Fund’s Collapse

The story of Firsthand Technology Value Fund offers several cautionary lessons for investors. It demonstrates how quickly investment fortunes can reverse, particularly for funds heavily concentrated in volatile sectors. It also highlights the potential misalignment between management incentives and shareholder interests, as Firsthand Capital Management continued collecting substantial fees even as the fund’s value evaporated.

Perhaps most importantly, SVVC’s transformation from a high-flying open-end mutual fund to a penny stock illustrates the profound risks of illiquid investments and the challenges of valuing private company holdings – precisely the concerns that prompted regulatory limitations on illiquid investments in publicly traded funds designed to protect “regular” investors from sophisticated investment risks they might not fully understand.

In the investment world, there’s an old saying: “There’s no such thing as a free lunch.” Yet the latest crop of exchange-traded funds (ETFs) offering both daily liquidity and exposure to illiquid assets might seem to promise just that—a financial equivalent of eating decadent cheesecake without gaining an ounce.

Alternately: we keep waiting for The Wizard to save us.

The Fundamental Tension

The investment industry has traditionally maintained strict guardrails between liquid public markets and illiquid private investments. This separation wasn’t arbitrary—it reflected a fundamental reality that illiquid investments, by their very nature, cannot be quickly converted to cash without significant price concessions.

Regulations limiting illiquid investments in publicly traded funds weren’t designed to deprive “regular” investors of opportunities, but rather to protect them from risks they might not fully comprehend or be equipped to handle.

Cautionary Tales

We’ve been here before. History provides sobering lessons.

In some cases, arrogance, overconfidence, and groupthink led to stunning levels of concentration in portfolios. The Fairholme Fund today has 74% of its portfolio in a single company, St. Joe. Bruce Berkowitz was Morningstar manager of the decade for 2000-10 but they dropped coverage of the fund in 2021, giving it a score of 100+ on their risk gauge, and note that its category rank has been either in the top 1% or bottom 1% of its peer group for seven of the past eight years. The Sequoia Fund not only sunk 36% of its portfolio in a single sketchy stock, Valeant Pharmaceuticals, but its public statements began parroting the Valeant CEO’s. We reported “the dark version of the Sequoia narrative” in 2016:

Goldfarb, abetted by an analyst, became obsessed about Valeant and crushed any internal dissent. Mr. Poppe, nominally Mr. Goldfarb’s peer, wouldn’t or couldn’t stop the disaster. “All the directors had repeatedly expressed concern” over the size of the Valeant stake and the decision to double down on it. Mr. Poppe dismissed their concerns: “recent events frustrated them.” The subsequent resignations by 40% of the board, with another apparently threatening to go, were inconsequential annoyances. Sequoia, rather snippily, noted that board members don’t control the portfolio, the managers do. Foot firmly on the gas, they turned the bus toward the cliff.

More recently our colleague Devesh Shah reported that Texas Public Land Corporation comprised 47% of the total holdings of Horizon Kinetics, advisor to the various Kinetics Funds. (Morningstar subsequently picked up on the story albeit without acknowledging Devesh’s work.) As of 3/1/25, Kinetics Paradigm has 66% of its portfolio in TPL and its sibling Kinetics Small Cap Opportunities sits at 53%. Both have perfectly splendid total returns coupled with Morningstar risk scores of 100+. Freakishly Morningstar has endorsed both, awarding them a Bronze analyst rating.

The most spectacular blow-ups have resulted from the confidence that star managers can magically turn illiquid investments into liquid ones.

Consider Firsthand Technology Value Fund (SVVC), which offered public investors access to pre-IPO tech companies. What seemed revolutionary quickly turned problematic as the fund frequently traded at substantial discounts to its net asset value (NAV)—sometimes exceeding 30%. Why? Because investors couldn’t be certain of the true value of its holdings, creating a persistent trust deficit. The fund posted annualized losses of 75% over the past three years and 60% over the past five. It now trades at $0.06/share and can’t even manage to liquidate. If you’re interested in the cautionary tale of the giant that tumbled, read “The Rise and Fall of Firsthand Technology Value Fund” (March 2025).

More dramatically, the Third Avenue Focused Credit Fund‘s collapse in 2015 demonstrates how quickly illiquidity can transform from theoretical to catastrophic. In 2016, we described it this way:

…offered the impossible: it would invest in illiquid securities but provide investors with daily liquidity. That worked fine as long as the market was rising and no one actually wanted their money back, but when the tide began to go out and investors wanted their money, the poop hit the propeller.

When redemptions accelerated, the fund couldn’t sell its junk bonds fast enough and ultimately had to bar investors from withdrawing their money—the ultimate liquidity failure. The fund froze redemptions and placed the fund in a locked trust. Investors exploded, and lawsuits followed, as did a $14.25 million payment from two Third Avenue executives. It took investors three years to receive, drip by drop, 84% of their investment back. Third Avenue was gutted.

Today’s Bold Experiments

Despite these cautionary tales, a new generation of funds is testing the boundaries:

• Franklin Global Allocation Fund has ventured into business development companies, a relatively modest step into less-liquid territory. Effective on February 5, 2025, the fund gained the option of investing in business development companies, “BDCs are a less common type of closed-end fund [which] typically invest in small, developing, financially troubled, private companies or other companies that may have value that can be realized over time, often with managerial assistance.” At around the same time, its management team turned over, leading Morningstar to place its status as “under review.” The fund has seen continuous outflows essentially every single month for a decade with annual returns in the 5-7% range. Adding the ability to goose returns with a new asset class makes business sense; adding illiquid assets and a new team is grounds for caution.

• SPDR SSGA Apollo IG Public & Private Credit ETF pushes further by investing in private credit markets.  Described as “ground-breaking” by Morningstar, the ETF will give investors exposure to illiquid private credit in a liquid vehicle. Up to 35% of the portfolio can be illiquid debt. The plan is for the fund to buy private credit from Apollo with the promise the Apollo will also promise to help them cover their … uhh, exposure. Morningstar’s Brian Moriarty explains:

  The ETF plans to overcome those concerns through a contractual agreement with Apollo, which will supply private-credit assets for the fund to buy and provide it with bids, or prices, on those same assets. Apollo has further agreed to purchase those investments from the fund up to an undefined daily limit. In other words, Apollo is selling these instruments to the fund and promising to buy them back at the request of State Street. (“A Groundbreaking New ETF Arrives,” Morningstar.com, 2/27/25).

  Pretty much no one but the adviser is sanguine about these promises. Mr. Moriarty frets “If redemptions are greater than Apollo’s daily limit and the ETF has few public securities, there are many more questions that the filing doesn’t answer… the filing makes it clear that ‘assets that were deemed liquid by the Adviser may become illiquid’ if Apollo is unable to provide a bid or unable to purchase those assets.”

  One day later the SEC belatedly located its Big Boy Pants and told the adviser to file an amended plan.  In a letter to the firms, the Securities and Exchange Commission noted that the fund had “significant remaining outstanding issues” around its liquidity, name, and ability to comply with valuation rules. That’s in part because the SEC accepted a filing with key information blacked-out, or redacted. “We have concerns,” associate director Brent Fields announced.  (Tania Mitra, “After launch, SEC raises concerns about State Street and Apollo’s private credit ETF,” Citywire, 2/28/25).

• ERShares Private-Public Crossover (XOVR) makes perhaps the boldest move by including private equity investments like SpaceX and it’s drawn the attention of two really smart, very different people, Jason Zweig and Jeff Ptak. Both start with the same observation: XOVR’s claim to fame is that it owns a chunk of Elon Musk’s company, SpaceX and it markets that fact relentlessly.

  The biggest question, though, is “How big a chunk do they own?” The honest answer to which is “sheet, I dunno” because SpaceX is privately traded and its price is anybody’s (and sometimes everybody’s) guess.

  The Wall Street Journal’s Jason Zweig launched on the fund in January, doing what Mr. Z. does best: he gets to the point quickly, clearly, and with great style. He reports on the possible current worth of one share of SpaceX: private firms variously put it at $115, $182, $185, $207, or $209. Which is accurate? As Mr. Z. puts it “who knows?” Equally troubling is what happens if the bubble starts to deflate: “in a market crash, XOVR would have to sell its most liquid holdings, such as Alphabet, Nvidia, Meta Platforms and Oracle, to meet redemptions if investors panicked. That might leave remaining shareholders owning little but SpaceX—which isn’t readily tradable.” The fund advisor fumbled about every query placed to it, leaving The Z to conclude, “If the investment industry wants to sell private assets to the public, it had better do better than this—a lot better.” (You Can Own Elon Musk’s SpaceX. But at What Price? WSJ.com, 1/24/25)

  Similarly, Morningstar’s Jeff Ptak did what he does best in his analysis of the fund, “How to Manage an ETF … Right Into a Corner” (2/25/25). The short version: Mr. P. analyzes more data, more carefully, and more extensively, than the firm’s own auditors might have. He notes that “Capital Impact Advisors, added private equity to its mandate last year and has heavily promoted it as ‘the first crossover ETF’ to invest in private equity in the months since.” The marketing worked (“Around 80% of the new money that’s flowed into the ETF since November has arrived after Dec. 10, 2024, when Capital Impact Advisors marked the SpaceX position up from $135 to $185 per share. It’s remained at that valuation ever since.”) The problem, he notes, is that this money could head for the exits just as quickly as it rushed in. In hopes of preventing that, the managers might double down on illiquid positions or might face a huge burden in liquidating a partially illiquid portfolio. It’s a good piece of analysis, and quite detailed.

Each represents a different position on the liquidity-illiquidity spectrum, with potentially different risk profiles. As Mr. Moriarty modestly observes, “This is a groundbreaking proposal that could open the door for a multitude of copycat vehicles… It’s a wide new ETF world out there.”

The Misalignment Problem

The core issue isn’t just illiquidity itself but the misalignment between asset liquidity and fund structure. When a fund promises daily redemptions while holding assets that might take weeks, months, or years to sell at reasonable prices, it creates a structural vulnerability.

This disconnect is like promising instant sobriety after a night of drinking—it violates fundamental realities. During market stress, this mismatch becomes particularly dangerous as funds may be forced to sell their most liquid holdings first, leaving remaining investors with an increasingly illiquid portfolio.

The Reality Check

These new ETFs aren’t offering the impossible—they’re offering a trade-off. The appropriate metaphor isn’t “alcohol without hangovers” but rather “alcohol with a hangover cure that might work.” The cure isn’t guaranteed, especially if too many people need it at once.

Smart investors understand that innovative financial products don’t eliminate fundamental trade-offs—they merely repackage them in ways that might obscure the underlying risks. The promise of private market returns with public market liquidity should be approached not with excitement but with heightened scrutiny.

Because in investing, as in life, when something seems too good to be true, it usually is.