What is a Buy and Hold fund?

In the investment world, there are multiple strategies for managing capital and obtaining returns. One of these strategies is Buy and Hold funds, which have specific characteristics that appeal to certain investor profiles. But what exactly is a Buy and Hold fund, and how do they relate to target-date and/or target-return funds?

Note: it is also known as Buy & Hold strategy to invest for the long term without worrying about what happens in the market, either by buying specific companies or indices. Here we will not deal with this strategy, but with funds that have the “Buy & Hold” designation.

What is a Buy & Hold fund?

A Buy & Hold fund is a type of mutual fund designed to be held until a specific date, known as the maturity date. During this period, the fund manager purchases a selection of bonds, with the intention of holding them until they reach their natural maturity (or the fund’s objective is met). This strategy offers predictability in yields and investment terms. Some Buy & Hold funds allow early maturity if certain objectives are met before the established term. This factor would differ from Target Date Funds or Target Return Funds that normally do not provide for this situation.

Relationship between Buy & Hold Funds and Target Date Funds

Target date funds are a category of funds that gradually adjust their portfolio as a predetermined date approaches. They initially hold bonds that mature during the maturity year, and tend to protect principal as the target date approaches.

Although Buy & Hold funds and target date funds have different names, they both share the characteristic of having fixed maturity. Both are designed to offer a clear and predictable strategy to investors, helping them to plan their investments, especially over the short and medium term, with greater certainty about return and risk.

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Relationship between Buy & Hold Funds and Target Return Funds

Target return funds seek to achieve a specific return over a certain period of time. These funds can adopt a variety of investment strategies, but their primary objective is to deliver a predetermined target return.

The relationship between Buy & Hold funds and target return funds lies in the predictability and clarity of investment objectives. Both types of funds allow investors to have a better understanding of expected returns and associated risks, facilitating financial planning and investment decision-making.

Buy & Hold funds, target date funds and target return funds are generally the same

In summary, Buy & Hold funds, target date funds and target return funds are different fund names that share the same main purpose: to provide investors with a target return known in advance.

These funds allow investors to establish a clear and predictable strategy, making it easier to plan their short- and medium-term investments. They offer greater certainty about expected returns if held to maturity, which helps limit risks.

The offer in fund format has grown in recent months thanks to the new interest rate situation. ETF options have also appeared in recent months. This increase in supply makes it feasible to generate Systematic Income and/or create staggered maturities with Target Portfolios, a very interesting option for the annuitant.

We remind you that our Target Portfolios are composed of fixed income Target Return Funds (or ETFs). They can also be called target maturity portfolios or fixed income Buy & Hold portfolios.

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