There’s a simple but powerful reason individual bonds often make more sense than bond funds: they mature. That one feature gives your clients something bond funds can’t—certainty.
When you buy an individual bond, you know what you’re getting. You know the coupon. You know the maturity date. And unless the issuer defaults, you know you’ll get your full principal back (assuming you invest at a discount or at par). That end date provides structure and clarity—especially important for retirees, income-focused investors, or anyone investing with a time horizon in mind.
Bond funds don’t offer that same clarity. They don’t mature. They’re perpetual portfolios, constantly buying and selling to maintain a target duration. That means the only way out is by selling the fund at its Net Asset Value (NAV)—which moves up and down with the market. And in rough years, that NAV can fall fast.
Just look at 2022.
Most intermediate-term bond funds lost 10% to 15%—and that’s including dividends. Strip out those interest payments, and the drop in principal value alone was often closer to 15% to 20%. That’s a steep hole to climb out of, especially for clients who assumed they were in something "safe."
And here’s the problem: NAV is not a proxy for a maturity date. It reflects the current market value of the bonds inside the fund—not a guaranteed payout in the future. The path back to even can take years, and that journey is murky. Reinvested dividends may help recover ground over time, but that assumes rates stabilize, prices recover, and the investor holds long enough to benefit.
Even as the individual bond marches back to par, the bond fund remains in recovery mode—its return path uncertain, its NAV still underwater. And because bond funds turn over their holdings, they often sell bonds before maturity, locking in losses instead of riding them out.
Now compare that to an individual bond bought in early 2022.
Yes, its market price may have dropped on paper—but the investor still receives the full coupon payments, and the bond still matures at par. No guesswork. No hoping for a rebound. Just a defined payoff at a defined time.
Even iQUANT’s own bond ETF models—which use rules-based strategies to manage risk—can’t offer that kind of structural clarity. While our models aim to reduce downside exposure, they still use ETFs that don’t mature. When volatility hits, a client still faces the same uncertainty: what is my NAV today, and when (or if) will it recover?
That’s why individual bonds are preferable. A laddered bond portfolio can provide clients with dependable income and defined return dates. They know when each piece of principal is coming back. That clarity helps clients stay calm and committed—something NAV-driven bond funds often fail to provide.
Bottom line: NAV is not a maturity date. And in 2022, that difference couldn’t have been more obvious.