This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

iShares Term Bonds: Good Idea, Poor Execution

Stocks in this article: IBDA IBDB IBDC IBDD BLK

NEW YORK ( TheStreet) -- I have been a huge fan of target maturity bond exchange-traded funds since they first came on the scene in 2010 They combine the maturity date of individual bonds, the diversification of a mutual fund, the tradability of a stock, and the transparency of an ETF.

Last week, BlackRock (BLK) rolled out its newest lineup of term-structured corporate bond ETFs. They appear to be very similar to the four iSharesBonds ETFs introduced in April, although the earlier versions excluded issuers from the financials sector.

As part of the recent overhaul of product names, BlackRock chose to distinguish the term-structured corporate bond ETFs from all other iShares ETFs by calling them iSharesBonds ETFs. For reasons unknown, BlackRock excluded all other bond ETFs, and even the iShares muni bond target maturity ETFs, from the new iSharesBonds designation.

According to the iShares Web site, one of the primary applications of bond ETFs that mature in a specific year is that "investors can construct a bond ladder using iSharesBonds." I agree with this concept, but the new ETFs mature in years 2016, 2018, 2020, and 2023. This uneven spacing is where the execution starts to falter.

Additional analysis follows the product descriptions.

  • iSharesBond 2016 Corporate Term ETF (IBDA) tracks the Barclays 2016 Maturity Corporate Index of U.S. dollar denominated investment-grade corporate bonds maturing in the 12 months preceding April 1, 2016. IBDA has 173 holdings, an average yield to maturity of 1.23%, an effective duration of 2.25 years, and an expense ratio of 0.10% (IBDA overview)
  • iSharesBond 2018 Corporate Term ETF (IBDB) tracks the Barclays 2018 Maturity Corporate Index of U.S. dollar denominated investment-grade corporate bonds maturing in the 12 months preceding April 1, 2018. IBDB has 183 holdings, an average yield to maturity of 2.33%, an effective duration of 3.86 years, and an expense ratio of 0.10% (IBDB overview)
  • iSharesBond 2020 Corporate Term ETF (IBDC) tracks the Barclays 2020 Maturity Corporate Index of U.S. dollar denominated investment-grade corporate bonds maturing in the 12 months preceding April 1, 2020. IBDC has 126 holdings, an average yield to maturity of 3.27%, an effective duration of 5.16 years, and an expense ratio of 0.10% (IBDC overview)
  • iSharesBond 2023 Corporate Term ETF (IBDD) tracks the Barclays 2023 Maturity Corporate Index of U.S. dollar denominated investment-grade corporate bonds maturing in the 12 months preceding April 1, 2023. IBDD has 195 holdings, an average yield to maturity of 3.83%, an effective duration of 7.67 years, and an expense ratio of 0.10% (IBDD overview)

Analysis/Opinion: Did you ever try to climb a ladder with a broken rung? How about one with more broken rungs than good ones?

A good ladder has its rungs evenly and predictably spaced. This new iSharesBonds series has three years to the first rung, two-year jumps to the second and third rungs, and then three years to the fourth rung. Furthermore, the fifth rung is undefined. We do not know if it will be a two-year step, a three-year step, or if 2023 is the end of the series. Whatever the answer, it is nearly impossible to have anything resembling a consistent ladder now, let alone when the 2016 ETF matures.

Another problem created by the iSharesBonds rung spacing is that this series only includes bonds maturing in four of the next 10 years, thereby excluding approximately 60% of all corporate investment grade bonds set to mature in the next decade. Do you really want to build a bond ladder from a universe that automatically excludes the majority of offerings just because of their maturity date?

Guggenheim BulletShares ETFs overcome all the problems with the iSharesBonds outlined above.

BulletShares have one-year between each rung of the ladder, do not eliminate bonds maturing in any years (let alone 60% of the years), and have clearly made their intentions known by allowing two funds (2011 and 2012) in the series to mature and extending the family with additional ETFs maturing in 2018, 2019, 2020, 2021, and 2022.

Additionally, the average yield to maturity for the Guggenheim products tends to be about 0.3% higher than the corresponding iSharesBonds products, even though they have slightly higher (0.14% higher) expense ratios.

At the time of publication the author was long various BulletShares High Yield ETFs.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Ron Rowland is the founder and president of Capital Cities Asset Management, a fee-based registered investment adviser in Austin, Texas. He is also the founder and publisher of Invest With An Edge and All Star Investor, where he has been providing market commentary and active investment advice since 1991. Opinions expressed in this article should not be considered personal recommendations to buy or sell any security.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs