Vanguard Joins Invesco in Race to Offer Bond Ladder ETFs

To make a taller ladder, add some rungs.

Vanguard officially entered the bond-ladder ETF fray this morning, with the launch of its BondBuilder funds. The company, which has not previously offered a line of target-maturity ETFs, now has low-fee corporate bond varieties ranging from maturities of 2027 to 2036. Not to be outdone, Invesco also has a forthcoming expansion of its BulletShares ETF line, adding bond coverage to include Treasurys. It’s also tacking on a 2036 corporate bond ETF and 2034 high yield corporate bond ETF to its product roster. The launches come as a number of competitors have branched out in the bond-ladder ETF market, offering more strategies to help advisors give clients a predictable income stream. 

“It’s democratized low-cost access to the over-the-counter bond market and opened up a world of use cases that only the ultra wealthy would have had at their disposal prior to the advent of this technology,” Invesco’s head of fixed income ETF strategy Jason Bloom said. 

Climbing the Corporate Ladder

Invesco’s BulletShares line currently includes 28 ETFs across investment-grade corporate debt, high yield corporate and municipal bonds, with maturities ranging from 2026 to 2035. The Treasury bond ETFs will add another category to the mix, with maturities for the products ranging from 2027 to 2031. The company filed for the funds last week with the Securities and Exchange Commission. 

“Demand for ETFs for bond laddering has been climbing as more investors look for simple, low‑cost tools to build bond ladders to generate income without managing individual securities,” said Cindy Zarker, relationship manager at Fuse Research Network. “Invesco’s effort to extend its BulletShares lineup into Treasury ETFs will broaden the suite beyond corporates and munis, giving investors a lower‑risk laddering option alongside its existing offerings and directly challenging iShares, the only provider currently offering defined‑maturity Treasury ETFs.”

Other asset managers have bolstered their bond-ladder ETF lines over the past year:

• State Street recently added more high-yield products to its MyIncome line.
• BlackRock filed late last year for 10 new iBonds ETFs across munis, corporates, Treasurys and high-yield. 

Supporting the Ladder. Target-maturity bond ETFs are useful for financial advisors using model portfolios and using block trades for large allocations that are then suballocated to client accounts, Bloom said. That’s difficult in the corporate and Treasury categories, for example, as a theoretical $100,000 bond ladder portfolio with 20 to 40 bond holdings would incur trading costs making it prohibitively expensive, especially in a low-rate environment, he noted. “It’s providing scalable low-cost access,” he said. “When you reduce all those frictional costs, you’re increasing the returns for the investors.”