Defined-maturity exchange-traded funds (ETFs) offer investors exposure to a portfolio of bonds designed to mature around a specific year. For example, a 2030 maturity ETF would primarily hold bonds maturing close to that year. These funds typically track an index composed of bonds with similar maturities.
Such investment vehicles provide several potential advantages, including increased predictability of cash flow and reduced interest rate risk compared to traditional bond funds. By holding the ETF until maturity, investors can potentially receive the principal back, minus expenses, similar to holding individual bonds to maturity. This structure offers a known maturity date, allowing investors to align their investments with specific financial goals like retirement or college tuition. Historically, these products gained popularity as interest rates fell, offering investors a way to lock in yields, and they continue to evolve as investor needs diversify.
