NEW YORK (TheStreet) --Because of the possibility that the 31-year bull market in bonds has finally ended, fixed-income funds could be the most important segment of the exchange-traded-fund industry as new funds will seek to offer exposure that provides access to the asset class as well as seek to protect against rising rates.
Sensing the possibility that rates could soon move higher, Guggenheim launched its BulletShares line of funds in 2010. The funds own bonds that all mature in the same year. Once the last bond in the fund matures, the fund then closes. There is an investment-grade BulletShare fund for every year from 2014 through 2022 and a high-yield BulletShare fund from 2014 through 2020.
The Guggenheim BulletShares 2014 Corporate Bond ETF (BSCE) has 222 holdings that all mature throughout 2014. As of now, it appears that none of the holdings has started to mature, but that will start on Tuesday when a General Electric Capital issue matures. The proceeds from that maturation will accrue as cash in the fund as will the proceeds from other issues. The cash will build up slowly until it becomes most of the fund and finally all of it when it closes on or about Dec. 31.
BulletShares address a major flaw in bond ETFs. The iShares 7-10 Year Treasury Bond ETF (IEF) will always target a maturity of seven to 10 years from the present day. Interest rates aren't static. Today IEF has a 12-month yield of 1.77%. In early 2006, IEF yielded 4.25%.