A quick overview of why Asset Dedication prefers BulletShares to iBonds. The distribution yields for BulletShares and iBonds are generally close. Distribution yield is the defined maturity ETF version of YTM for individual bonds. The ETF company with the highest distribution yield varies at any given point in time. iBonds, however, have consistently had lower overall credit quality than BulletShares with the same maturity date. On average, BulletShares have about 5% less allocated to BBB bonds, the lowest investment grade credit quality rating for bonds. Since these defined maturity ETFs are used as surrogates for individual bonds and may be used to generate an investor’s retirement income, we feel that the higher credit quality found in the BulletShares is more important than any minor differences in distribution yield or small transaction costs. BulletShares are traded with no transaction fee at Schwab and iBonds have no transaction fee at Fidelity. There are other, more obscure technical reasons why we prefer Bulletshares as well, but the credit quality issue is primary.
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