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Time for Cash-Like ETFs?

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Rising rate worries are gripping the whole world, crippling the investing scenario again with uncertainty. Volatility may become the name of the game thanks to a host of factors ranging from rising inflation in the United States and other parts of the developed world, fears of a slowdown in China and the resultant pressure on supply chain and global growth, and geopolitical issues.

Wall Street was off to the worst start to a year in 2022 since 1939. And analysts believe that more crashes are in the cards as U.S. recessionary fears are rife now. As rising rate worries have been prevalent with the Fed hiking rates faster and fatter this year, the bond investing is also at worse. This happens because, bond prices share an inverse relationship with bond yields. Stocks are also at shambles.

Hence, cash is emerging as a popular asset with Wall Street’s top managers. Rick Rieder, managing director at BlackRock Inc., said the world’s largest asset manager is raising cash holdings by more than 50% in many portfolios to a weighting that is “much, much higher” than it had been in years past, as quoted on Wall Street Journal. With central banks striving to lower inflation by raising interest rates across the world, he expects stock prices to remain volatile for the next two to six months.

Why Buying Cash-Like ETFs Makes Sense Now

Investors sold their possessions to retain money in the wake of the heightened uncertainty caused by a market crash. The road ahead is a bit unclear. Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio.

This is especially true given that the Fed will keep on hiking rates this year and short-term bond yields will rise alongside. That would result in a similar rate for cash-like assets such as money-market funds. As of Jun 20, yield on three-year U.S. treasury note was 3.35%, higher than the 10-year note (i.e., 3.25%). One -year note yielded 2.86% while two-year note yielded 3.17%.

Per the WSJ article, Bank of America’s April survey of global asset managers showed that cash holdings are near the highest level since April 2020 — the period representing the aftershock of the COVID-driven market selloff. The article pointed out that State Street Global Advisors also said portfolios at the firm are holding at least 50% more cash from the beginning of the year.

Below we highlight a few money-market ETFs and their performance plus yields.

ETFs in Focus

iShares iBonds 2022 Term High Yield & Income ETF (IBHB - Free Report) – Yields 3.61% annually

The underlying Bloomberg 2022 Term High Yield and Income Index comprises of U.S. dollar-denominated, high yield and other income generating corporate bonds maturing in 2022. The fund charges 35 bps in fees.

JPMorgan UltraShort Income ETF (JPST - Free Report) – Yields 0.73% annually

The JPMorgan Ultra-Short Income ETF seeks to achieve its investment objective by primarily investing in investment grade, U.S. dollar denominated short-term fixed, variable and floating rate debt. The fund charges 18 bps in fees and yields 0.73% annually.

Invesco Global Short Term High Yield Bond ETF (PGHY - Free Report) – Yields 5.26% annually

The underlying DB Global Short Maturity High Yield Bond Index tracks U.S. and foreign short-term, non-investment grade bonds denominated in US dollars and is rebalanced quarterly and re-weighted annually. The fund charges 35 bps in fees and yields 5.38% annually.

iShares iBonds 2023 Term High Yield & Income ETF (IBHC - Free Report) – Yields 5.06% annually

The underlying Bloomberg 2023 Term High Yield and Income Index comprises of U.S. dollar-denominated, high yield and other income generating corporate bonds maturing in 2023. The fund charges 35 bps in fees and yields 5.06% annually.

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