At ETF Action, we spend our days categorizing and analyzing thousands of exchange-traded funds, and most new products fit neatly into our existing framework. Every so often, however, a fund family introduces a strategy that requires a closer look, compelling us to carve out a new category to properly capture its specific value proposition for investors. Northern Trust’s new suites of Distributing Ladder ETFs are a perfect example of such a refinement.
An Independent Review: A New Twist on Defined Maturity
For years, defined-maturity (or “target-date”) bond ETFs have served as powerful tools for investors. Their single-year maturity structure makes them ideal for precise financial planning, like funding a specific liability or creating the individual rungs of a custom bond ladder. Building a ladder this way is an effective, albeit hands-on, process that involves managing multiple ETF positions to create a desired stream of maturing principal.
Northern Trust’s new ETFs are engineered to refine this model, offering a more efficient and cash-flow-centric solution. The launch includes two distinct suites: the Northern Trust Tax-Exempt Distributing Ladder ETFs (MUNA, MUNB, MUNC, MUND), with maturities in 2030, 2035, 2045, and 2055 respectively, and the Northern Trust Inflation-Linked Distributing Ladder ETFs (TIPA, TIPB, TIPC, TIPD), which follow the same maturity schedule.
How They Work
The key feature is right in the name: “Distributing.” Unlike traditional defined-maturity funds that wait until the end to return capital, these ETFs begin distributing principal back to shareholders as the individual bonds within the portfolio mature. Instead of reinvesting that principal, the fund passes it directly through to the investor.
This creates a “ladder” of cash flows within a single ETF. Investors receive not only the periodic coupon payments but also periodic distributions of principal leading up to the fund’s final maturity date. This approach provides a more predictable and robust income stream, potentially minimizing cash drag, and more closely mimics the experience of owning a portfolio of individual bonds that mature over several years.
Potential Use Cases & Considerations
The primary audience for these strategies is investors with specific, date-driven financial goals. The Tax-Exempt suite is ideal for high-income investors planning for liabilities where tax-free income is paramount, while the Inflation-Linked suite is designed for those who need to ensure their future income stream keeps pace with inflation.
Of course, advisors and investors could construct a similar ladder themselves using a series of traditional defined-maturity ETFs. This do-it-yourself approach offers greater customization, allowing for the precise selection of maturities and credit exposures. The trade-off, however, is complexity and cost. These new packaged ETFs offer a practical alternative that requires less hands-on management and may reduce implementation costs by consolidating multiple positions into a single holding.
The return of principal is not a taxable event, which adds a layer of tax efficiency to both strategies. However, investors should note that the share price (NAV) of the funds will decline as principal is distributed, which is the intended behavior. Like any fixed-income investment, these funds also carry underlying interest rate and credit risk. While the underlying bonds will converge to par as they approach maturity, mitigating risk for those who hold until the end, investors should be aware that the share price will fluctuate with prevailing interest rates if they sell before the fund’s final termination date.
A New Category: The Maturing Ladder
To properly classify these products, we have introduced a new category within the ETF Action ecosystem: Fixed Income > Specialty > Maturing Ladder.
This distinction is critical. While these funds have a defined termination date, their core value proposition is different from traditional “Defined Maturity” ETFs. The “Maturing Ladder” name reflects the investor’s experience: receiving a laddered series of cash flows from maturing bonds within the fund’s lifespan. It’s not just a single endpoint; it’s a process of maturation that delivers cash flow along the way. This makes the “Maturing Ladder” classification a more precise description of the strategy than the broader defined-maturity bucket.
You can now find all eight of these new ETFs in our dashboards by navigating to Fixed Income > Specialty > Maturing Ladder. Alternatively, you can use the ETF Database and set the “Category” filter to Fixed Income: Specialty – Maturing Ladder to analyze these and any future funds that employ this new structure.
Disclosures
This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. Investors should consider their investment objectives, risks, charges, and expenses carefully before investing.
This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review.
