Why Bond Ladder ETFs Are All the Rage

Everyone knows ladders are better than chutes.

Invesco last week introduced its latest suite of BulletShares Treasury bond ETFs, which expand its existing fixed-income lineup. The strategies use a method called laddering, in which a fund holds bonds maturing in specific calendar years so that as they mature, yields are invested back into other bonds with later payout dates. The popularity of these so-called defined maturity ETFs is growing as rising interest rates correlate with falling bond prices and investors seek safety amid macroeconomic and geopolitical turmoil.

With disruptions from tariffs and trade wars to the shutdown of the Strait of Hormuz and the impact of AI on the economy, “when you can buy a diversified portfolio [of] bonds, hold them to maturity and create a sleeve of visibility, it’s really nice to have,” said Jason Bloom, Invesco’s head of fixed income ETF strategy.

Climbing the Ladder

Part of the bond ladder’s appeal is that the securities are curated for higher credit quality, better pricing and improved liquidity. Bond ladders have been around for decades and were popular in the years before 2008 but became less common after the Great Recession due to the low interest rates at the time. Now, however, fund providers are getting back on the ladder: Vanguard launched its own so-called “BondBuilder” funds earlier this year. Another reason for their ongoing popularity is that they can provide a cushion in times of default, Bloom said. “If you only own 10 investment-grade corporate bonds and one of them defaults, that’s a huge hit to a low-yielding portfolio,” he said. “People thought, ‘Well, it’s investment grade, it won’t default.’ Well, actually, what that means is they rarely default, but in times of crisis, the risk-reward [outlook] hasn’t always looked so good.”

Other major players in the bond-laddering space include:

• State Street, which has offered its active target maturity ETFs since 2024.
• WisdomTree, whose WisdomTree Core Laddered Municipal Fund (WTMU) was introduced last year.
• BlackRock, whose iBonds ETFs allow for ladder customization with maturity dates up to 10 years in the future.

Rolling On The River. We’re currently in a period of “rolling recessions,” Bloom said, in which certain sectors of the economy have boomed while others are put under stress. Diversifying a bond portfolio is a good way to hedge against the ever-changing uncertainties, he added. “In an equity portfolio, a stock can go to zero and another stock could double in price to offset that,” Bloom said. “You can’t get that kind of offset in a fixed-income portfolio … You don’t want to be owning just 10 or 20 bonds in your personal account.”