There are short duration bonds and corresponding ETFs. For advisors and fixed income investors who really want to minimize interest rate risk, there are ultra-short alternatives. Those products are worth considering this year.
The AB Ultra Short Income ETF (YEAR) is one of the ultra-short ETFs to consider. Actively managed, YEAR turns four years old in September. The $1.47 billion ETF delivers on the ultra-short promise, as highlighted by its effective duration of less than a year.
Home to 183 bonds, YEAR sports a 30-day SEC yield of 3.98%. Yes, that percentage is likely to decline if the macroeconomic environment cooperates, allowing the Federal Reserve to cut interest rates. However, in that scenario, the ETF would likely be a more attractive alternative to high yield savings accounts and money market funds.
“With some level of policy rate cuts expected, many investors are taking a closer look at their portfolio’s cash exposure. Historically, yields on money-market funds and short-term instruments have reacted to Fed cuts in real time, so attempting to time the market can be perilous if those yields tumble,” according to AllianceBernstein research.
More YEAR Perks
Let’s work on the premise that the war in Iran officially ends and inflation declines, potentially setting the stage for rate cuts. That would likely compel some advisors and investors to embrace longer duration bonds and the related ETFs. But rate cuts don’t diminish the appeal of ETFs such as YEAR.
