Originally published at: Simplifying bond investing: what are BulletShares ETFs? – InvestEngine Insights
The landscape of exchange-traded funds (ETFs) is vast. Whether you want to invest in gold, corporate bonds or the FTSE 100, there’s an ETF to cater for your needs.
So, we’re always on the lookout for interesting new angles to make ETF investing more flexible. Invesco’s BulletShares are one of these innovations – their mission is to combine the benefits of bonds with the flexibility of ETFs.
In this piece, we’ll explore what BulletShares ETFs are and what they can offer investors that other assets can’t.
What is a BulletShares ETF?
The primary way in which BulletShares ETFs differ from regular bond ETFs is that each BulletShares ETF has a fixed maturity date.
Unlike most bond ETFs, which constantly reinvest the proceeds of maturing bonds into new bonds to keep the ETF’s duration constant, a BulletShares ETF will mature in the year specified in the ETF’s name.
So, the ‘Invesco BulletShares 2026 USD Corporate Bond UCITS ETF Acc’ will mature in 2026. This means that, upon maturity, the asset closes and your initial investment is returned along with the income paid by the underlying bonds along the way*. This lump sum is on top of quarterly dividends that are also paid out.
Each BulletShares ETF is designed to terminate in mid-December of the designated year and makes a final distribution at maturity.
They therefore have a fixed maturity and make regular income payments like an individual bond, whilst providing the diversification benefits, liquidity benefits, and transparency benefits of an ETF.
*In the rare event that a bond defaults, this could reduce the payout at maturity.
Why use a BulletShares ETF?
Income predictability
One attractive feature of a bond ETF with a defined maturity is that it provides income predictability. The ETF will pay quarterly dividends, as well as a lump sum when the ETF matures.
Investors can therefore buy a single BulletShares ETF to fund an upcoming specific expense, such as a university tuition payment or tax bill.
As long as the investor knows when an expense is due, they can invest in the appropriately dated BulletShares ETF to match the ETF’s eventual payment at maturity, plus the quarterly dividends, to offset the expense.
Bond laddering
These ETFs can also be used for bond laddering. A traditional bond ladder is built with individual bonds of varying maturities. As one bond matures, the proceeds can be used for income needs or reinvested in new bonds which mature in subsequent years.
Investors can use BulletShares UCITS ETFs to build bond ladders without the time and expense of using individual bonds.
Investors may use bond ladders, or bond ETF ladders, to help create some predictability and stability regardless of market volatility and interest rate environments. Since they have specific maturity dates, ladders can be customised to target specific dates, giving investors more control over the portfolio’s income streams and sensitivity to changes in interest rates.
For instance, when interest rates are rising, an investor may choose to reinvest any proceeds from maturing BulletShares ETFs into new BulletShares ETFs with higher rates. Meanwhile, if interest rates fall, they may prefer to reinvest less of the maturity proceeds into new ETFs with lower rates.
Bond ETF ladders therefore not only appeal to investors looking for some income predictability in volatile interest rate environments, but also provide flexibility, as they can be customised to target specific maturity dates, and the proceeds at maturity can be reinvested or used to cover an expense.
BulletShare ETFs available
Invesco’s BulletShares ETFs provide a choice of exposure to either USD or EUR investment grade corporate bonds, with maturity ranges from 2026 to 2030, and offer a GBP-hedged share class for investors who wish to minimise currency risk.
The ETFs offer a choice of quarterly distributing or accumulating share classes which can provide a regular income stream like a bond or reinvest coupon payments until the final maturity.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.