How These Fixed Income Bond ETFs Use Laddered Bonds
Northern Trust Asset Management unveiled 11 new fixed income ETFs. Congratulations. Which segments of the bond market are these recently launched ETFs targeting?
The first three are really expanding our capabilities with municipal bonds. Northern Trust has been working with municipal bonds for 30 years. We have 17 investment professionals with an average of 18 years experience in the MUN bond space, but these are our first three that are passively tracking in the ETF vehicle, the municipal bond space. There's three of them that cover different maturity segments of the municipal bond market.
There's the short duration or short maturity, which is T AXS taxes that covers the one to five space. There's an intermediate maturity space T A T A XI, so taxi, and then finally there's a full municipal bond curve one that's T A XT that covers the full maturity of the municipal bond curve. So really this is expanding our capabilities for our clients giving them new tools to use in their portfolio.
The first three and then the other eight are really split between two different product segments and two different sets of distributing ladder ETFs. This is a new concept that's out there in the market today, very similar to a traditional ladder where you're owning multiple rungs, multiple years of bonds that you're stringing together into a ladder.
What that does is that helps you from an interest rate sensitivity standpoint because you're owning those bonds till they mature at par value. So you don't have to worry as much about interest rate exposure. Typically the way a traditional bond ladder works is when those bonds mature, you go out and invest in the next rung that you would. So if it was a 1 to 10 year ladder, you would be taking that first year and buying the 11th year. So it's always a 10-year bond ladder.
What distributing ladders do is when those bonds mature at the end of the year, we're going to be returning capital back to investors. So it offers all the benefits of a traditional ladder, but with an additional benefit of becoming a powerful cash flow management and financial planning tool for investors to use in their portfolio.
There's four in each set. Four of those will cover inflation linked bonds, using TIP securities, and then the other four will also be MUN securities offering tax exempt income on top of that. Each set will have bonds covering 5, 10, 20, and 30 years. So, you're talking about being able to buy a 30-year MUN bond ladder with one single ticker purchase.
