@LewisBraham mentions BSCP as an illustration of the target date bond ETFs available in this Week’s
Barron’s. (I’ll caution that it does not appear to be a
specific recommendation, but constitutes just one component in a broader look at bond ETFs.) The fund invests in corporate bonds. My understanding is that such funds return no regular / compound interest, but mature at a higher valuation, providing interest-like return. For the most part it should be possible to project the yield from the date of purchase until maturity. But ISTM the vicissitudes of the corporate bond markets would inject a certain amount of uncertainty?
From Invesco’s
Prospectus::
”The Fund will terminate on or about December 15, 2025 without requiring additional approval by the Board of Trustees (the “Board”) of Invesco Exchange-Traded Self-Indexed Fund Trust (the “Trust”) or Fund shareholders, although the Board may change the termination date. In connection with the termination of the Fund, the Fund will make a cash distribution of its net assets to then-current shareholders after making appropriate provisions for any liabilities of the Fund.”- Short question - How could I project out the likely return at the termination date when purchasing?
- Or, is there no reliable way to do so?
Thanks for any tips. Thanks to Lewis for a good article.
PS - If I remember correctly, The AC zero-coupon funds I played with 2 decades ago terminated at a set dollar price per share. The U.S. backing of Treasuries made such precise forecasting possible. Corporates (zero or not) occupy a different playing field.
Comments
For distribution skipping, you may be thinking of an ETF mentioned LAST week, BOXX that doesn't have distributions.
What I’ve been mulling over in recent days is something similar to a zero-coupon, but maybe just out 2, 3, 4 years. (Zeros are crazy volatile as I think everyone knows.) Might be a good hedge / hold if you think a serious recession lies ahead (late ‘24 or ‘25).
I’d guess these can be purchased individually but that funds like the old AC series have pretty much disappeared. I have begun watching AC’s BTTRX for what information it may provide. (This one has 1.56 years to maturity and has a NAV over $108 which doesn’t make a lot of sense to me. My 2 decade old memory is that they matured at $100. But can’t be correct.)
They terminated at roughly a target price because they were (and BTTRX still is) target maturity funds that held zero coupon bonds (no reinvestment risk/price fluctuation) that matured in the target year. Admittedly holding treasuries eliminates default risk, but that should be minimal with high grade corporates as well.
Even with all that certainty, forecasting a precise end price wasn't possible. From the summary prospectus:
”Although the fund’s investment policies are designed to provide an investment that is similar to investing in a zero-coupon U.S. Treasury security that matures in the year 2025, a precise forecast of the fund’s final maturity value and yield to maturity is not possible.”
Interesting. ISTM back in the early 2000s the TD bond funds at AC had a defined termination price … And a lot of jig-sawing up and down along the way. Just puzzled here. BTTRX’s current NAV of $108 + is equally puzzling. I’ve no idea what those shares would look like when the fund terminates in December 2025. One would think a very close predetermination would be possible if it invests in zeros like it says.
For Zeros, duration = maturity, so a 30-yr Zero will have huge volatility.
Not something I’d get very extravagant using. Just one simple 2 or 3 year zero (probably as a short term speculative hedge) would be enough.
With your help I’ve found FZROX at Fidelity.
Must be a mover / shaker - FZROZ +0.97% Friday. A little bit of this would go a long way!
Down 19% in 22. Volatility should subside as maturity date nears. Will investigate when have time. First 70 degree day in N Michigan since October.
Check out Fido's Bonds/Treasury section.