Fixed-income Closed-End ETFs seek to provide current income by investing in corporate, preferred, specialty, municipal, government or agency securities. Many fixed-income securities are rated for credit worthiness and payment default risk by independent ratings services such as Standard & Poors and Moody's Investors Service. Bonds rated in one of the four highest ratings categories generally are considered to be of investment-grade quality, while bonds rated in the lower categories are considered to be non-investment-grade. Investment grade securities are judged by the rating agencies to be able to repay interest and principal reliably.
Fixed-income Closed-End ETFs often make it a point to invest primarily in either investment-grade or non-investment-grade securities. This helps investors make judgments about the relative safety of different potential investments.
Some of these funds may leverage their assets through the issuance of notes and preferred stock or hedge their portfolios through the use of options, futures and swaps.
National municipal bond Closed-End ETFs seek to provide current income exempt from federal income taxes by investing in a portfolio of bonds issued by any state or municipality. In addition to the federal tax exemption, the interest generated by these funds may be exempt from state and local taxes as well. The two main categories of municipal bonds include general obligation and revenue bonds. General obligation bond interest and principal payments are backed by the credit of the issuing organization, and are generally more secure due to the taxing power of the organization. Revenue bond interest and principal payments are backed by the revenue from the project being financed, and are generally less secure than general obligation bonds.
State specific municipal bond Closed-End ETFs seek to provide current income generally exempt from federal income taxes. In addition, income earned on state municipal bonds is generally exempt from state income taxes for shareholders who reside in a state whose municipal bonds are held by the closed-end fund. Like national municipal bonds, the two main categories of state municipal bonds include general obligation and revenue bonds. General obligation bond interest and principal payments are backed by the credit of the issuing organization, and are generally more secure due to the taxing power of the organization. Revenue bond interest and principal payments are backed by the revenue from the project being financed, and are generally less secure than general obligation bonds.
High yield municipal closed-end bond funds seek to provide current income by investing primarily in un-rated municipal bonds and municipal bonds rated lower than BBB/Baa by independent ratings services. In addition to the federal tax exemption, the interest generated by these funds may be exempt from state and local taxes as well. The two main categories of municipal bonds include general obligation and revenue bonds. General obligation bond interest and principal payments are backed by the credit of the issuing organization, and are generally more secure due to the taxing power of the organization. Revenue bond interest and principal payments are backed by the revenue from the project being financed, and are generally less secure than general obligation bonds
The bonds in high yield funds may carry significant risks regarding the timely payment of both principal and interest. Often, at least 65% of fund assets are invested in sub-BBB rated bonds, with the remainder invested in private placements, convertible securities, US and non-US government debt, as well as dividend paying stocks.
Corporate high yield closed-end bond funds seek to provide high current income by investing in speculative bonds rated lower than BBB/Baa by independent ratings services, including un-rated and defaulted securities. These bonds may carry significant risks regarding the timely payment of both principal and interest. Typically, at least 65% of a high-yield fund's assets are invested in sub-BBB rated and un-rated bonds, with the remainder often invested in private placements, convertible securities, US and non-US government debt, as well as dividend paying stocks.
Investment grade corporate closed-end bond funds seek to provide current income by investing in bonds rated BBB or higher by independent rating services. Typically, at least 65% of fund assets are invested in BBB or higher rated bonds, with the remainder invested in private placements, warrants, dividend paying stocks, and convertible securities.
Mortgage bond Closed-End ETFs seek to provide current income by investing primarily in mortgage-backed securities that may be rated AAA by independent rating services or guaranteed by the government. Typically, at least 65% of the fund assets are invested in these mortgage-backed securities, although the remaining assets may also be invested in asset-backed securities, investment grade corporate debt securities and zero coupon securities. Funds may also choose to invest in the interest-only or principal-onlytranche of mortgage-backed securities.
General investment grade closed-end bond funds seek to provide current income by investing in debt and preferred securities rated BBB or higher by independent rating services. These debt securities pledge to pay interest payments and promise to pay back the face value of the bond at maturity. Typically, at least 65% of fund assets are invested in BBB or higher rated bonds, with the remainder often invested in private placements, warrants, dividend paying stocks, convertible securities, bank debt and commercial paper.
Government bond Closed-End ETFs seek to provide current income by investing primarily in debt instruments issued or guaranteed by the US government, its agencies or instrumentalities. Typically, at least 65% of total assets are invested in these instruments, with the remainder invested in other securities such as foreign government debt or dividend-paying equity securities.
Global fixed-income Closed-End ETFs seek to provide current income by investing primarily in fixed income securities issued by governments or private companies of developed nations. These funds may build portfolios that consist of securities issued by a broad range of companies and governments, diversified across countries, regions, economic conditions and credit ratings. Many fixed-income securities are rated for credit worthiness and payment default risk by independent ratings services such as Standard & Poors and Moody's Investors Service. Bonds rated in one of the four highest ratings categories generally are considered to be of investment-grade quality, while bonds rated in the lower categories are considered to be non-investment-grade. Investment grade securities are judged by the rating agencies to be able to repay interest and principal reliably.
Global emerging markets fixed-income Closed-End ETFs seek to provide current income by investing in fixed-income securities of developing nations. These funds may build portfolios that consist of securities issued by a broad range of companies and governments, diversified across countries, regions and economic conditions. Many emerging markets fixed-income securities are typically not rated by independent ratings services.
Specialty bond Closed-End ETFs seek to provide current income by investing in a variety of securities that may include convertible, corporate, municipal and government debt, private-placements and international debt, including emerging market securities and foreign government obligations. Additional investment and hedging instruments may include options and futures, repurchase agreements, forward currency contracts and when-issued securities.
