Volatility is the name of the game now thanks to a host of factors ranging from rising rate concerns in the United States, U.S.-Sino trade tensions and the resultant pressure on global growth, geopolitical issues and uncertainty around mid-term. Along with these, JP Morgan Asset Management believes that the near-term threats may include the
end of a 10-year bull market in equities.
The entire October has been riotous. The S&P 500 and the Dow Jones are now in the red for the year and the Nasdaq is up by just 2.3% (as of Oct 26, 2018). CBOE Volatility Index, widely viewed as the best gauge of fear in the market, has risen 101% in the past month (as of Oct 26, 2018) (read:
4 Low-Risk ETFs as the S&P 500 Turns Red for 2018).
Morgan Stanley apprehends more selling pressure on Wall Street due to “
declining liquidity and growing concerns about peaking growth”. The condition of the bond market is equally appalling as iShares 20+ Year Treasury Bond ETF TLT has lost about 1% due to rising rates.
Against this backdrop, many analysts are suggesting that they will park their money in ultra-short duration cash-like ETFs. AXA Investment Managers has recently commented that “
cash is now a genuine asset class.” Why Are Ultra-Short Duration Cash-Like ETFs Favored?
Since these have very low duration, these are less susceptible to rising rate worries. Analysts believe cash and short-dated fixed income may play a
greater role in providing stabilization in a portfolio.
Real returns of cash alternatives are improving. Yield on short-term Treasury bills outdoes U.S. inflation, meaning investors can now have real, inflation-adjusted return from cash
for the first time in a decade, per Financial Times. Investors should note that yield on three-month treasury note stood at 2.33% on Oct 26, up from 2.23% seen at the start of the month. On the other hand, yields on 10-year Treasury note dropped 1-bp to 3.08% on Oct 26 from what we saw on Oct 1.
So, it is a hot spot right now. U.S. investors put
58% of their investable assets in cash or cash equivalents, based on an investor survey by BlackRock. Vanguard Short-Term Bond ETF BSV has added 0.3% in the past month against a negative decline in long-term treasury bond ETFs.
Against this backdrop, we highlight below a few ultra-short duration bond ETFs, which behave like cash assets but should position investors to scrape through the current tumultuous time (read:
4 Ultra-Short Bond ETFs to Hedge Against Rising Rates). PIMCO Enhanced Short Maturity Active Exchange-Traded Fund MINT
Its effective duration is 0.36 years while the 30-day SEC yield is 2.52% annually (as of Oct 26, 2018). It is up 0.2% in the past month (see all
Money Market/Ultra-Short-Term ETFs here). iShares Ultra Short-Term Bond ETF ICSH
Its effective duration is 0.41 years while the 30-day SEC yield is 2.62% annually (as of Oct 25, 2018). It is up 0.2% in a month.
JPMorgan Ultra-Short Income ETF ( JPST Quick Quote JPST - Free Report)
Its 30-day SEC yield is 2.59% while its duration is only 0.51 years. It is up 0.21% in a month.
SPDR SSgA Ultra Short-Term Bond ETF ULST
Its Option Adjusted Duration is 0.24 years while the 30-day SEC yield of the fund is 2.27% annually. The fund has added about 0.2% in a month.
iShares Floating Rate Bond ETF FLOT
Its 30-day SEC yield is 2.51% while its duration is only 0.15 years. It is up 0.1% in a month.
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