wall street has a long history of “productizing” financial strategies and firms haven’t always hit the mark complex financial products are often simply a way to charge very high fees that’s especially the case with strategies designed to produce predictable income streams over a period of years whether they are annuities or exotic derivatives contracts that has led many advisors to manually structure client portfolios to produce predictable income flows from dividends bond interest bond maturities and other fixed income assets often that cash flow will be earmarked for specific goals that are not covered by employment income and while many advisors still rely on timeintensive portfolio management plenty of other incomegenerating vehicles are playing a growing role in client portfolios these days beauty of bond ladders although bond ladder etfs have been around for several years they are seeing especially strong uptake in 2022 the ishares family of bond ladder etfs for example has seen more than 3 billion in net inflows year to date according to karen veraa a fixed income product strategist at blackrock  with nearly half of the funds flowing into investmentgrade bond funds these ladder etfs have the virtue of being simple and transparent they are set to mature and be redeemed at the end of any given year and owning a series of them over a five or sixyear payout period can enable the remainder of a client’s portfolio to stay invested for the longterm of course advisors can seek out a series of specific bonds to create a ladder yet these etfs simplify the process at a fairly low cost management fees for the ishares bond ladder etfs start at 007 while another family of bond ladder etfs the invesco bulletshares funds have annual fees as low as 010 treasury etfs tend to be the cheapest while highyield bond ladder etfs can approach 3040 basis points while both firms offer a broad range of etfs covering investmentgrade highyield treasury and municipal bonds invesco also offers a fund targeting international bonds blackrock’s veraa says that investors are using these funds in various income strategies for example they can be helpful with retirement accounts when an advisor has a clear sense of a clients’ future required minimum distributions rmds since rmds tend to grow each year as a client ages based on the internal revenue service’s rmd table advisors buy a series of etfs in steadily rising dollar amounts that can also come in handy for heirs who can avoid the “what to sell and when to sell it” question from inherited retirement accounts demand for bond ladder etfs has surged this year as a result of rising interest rates and the resulting fall in bond prices “some people are selling their bond funds as part of a tax loss harvesting strategy and replacing them with bond ladder etfs to avoid the ‘wash sale‘ rule” veraa says other investors are now using bond ladder etfs for assetliability matching she says for example if money is being saved for college tuition or a balloon payment will come due on a mortgage then an etf with a coincident maturity can be matched to the need in a rising rate environment bond ladders are extra appealing because they allow investors to retain principal and reinvest maturing bonds or etfs at higher rates some drawbacks to be sure as the yield curve is currently inverted investors aren’t currently getting well compensated for the duration of longerdated bond ladder etfs for example the ishares ibonds dec 2024 term corporate etf ibdp has an average yieldtomaturity of 37 whereas the ishares ibonds dec 2027 term corporate etf ibds has only a slightly better 4 yield presumably as the yield curve eventually returns to a more traditional slope the bond laddering approach will have a greater payoff even those yields may not be enough to meet a client’s income needs which leads many advisors to stick with active portfolio management to structure payouts to meet cash flow obligations kyle newell a feeonly advisor in winter garden fla still looks for individual bond holdings with targeted maturity dates for larger accounts though he concedes that “it can be challenging to find just the right bond to line up with the income needs especially for smaller accounts” as a result the advisor has come to utilize more bond ladder etfs in client portfolios in 2022 while individual bond and bond etfs can be helpful they still offer yields that are below historical levels in response some advisors are migrating client portfolios to other fixed income solutions such as private credit charles sachs chief investment officer at wealth management firm kaufman rossin says that lining up solid income payouts against client cash flow needs “has been one of the most challenging things in my 20 to 30 year career to create” private mortgages in recent years he has been investing a greater share of client funds in private mortgage funds many of which are shortterm eg 23 years and can yield 7 or more “these funds allow you to diversify exposure to multiple loans and maturities” he says adding that many of the funds “allow you to structure the payouts as needed” for clients that want to tap into the robust yields but that don’t have nearterm cash flow gaps to cover these funds also allow for maturing proceeds to be reinvested the rapid uptick in usage of bond ladder etfs in 2022 is surely no fluke and as more assets flow into the category look for blackrock and invesco to see more competition in this area david sterman is a journalist and registered investment advisor he runs huguenot financial planning a new paltz nybased feeonly financial planning firm