Ten-year Treasury yields surged by nearly 130 basis points last year as investors fretted about a reduction to the Federal Reserve’s $85 billion-per-month quantitative easing program.
Those rising yields prompted losses for scores of bond exchange traded funds, catching many investors off-guard in the process. A survey released by Edward Jones in August 2013 highlighted just how surprised some investors were by the destructive effects of rising Treasury yields on the fixed income portions of their portfolios.
The survey showed 63% of Americans don’t know how rising interest rates will impact investment portfolios such as 401(k)s, IRAs and other savings platforms. [Investors Don’t Understand Rising Rates Risk]
“In fact, a full 24% say they feel completely in the dark about the potential effects,” Edward Jones said.
While investors pulled $63 billion from money market mutual funds last year, they poured $36 billion into short-duration ETFs, S&P Capital IQ noted, citing BlackRock data. One of the winners in the rush to short-duration ETFs was the Vanguard Short-Term Bond ETF (NYSEArca: BSV), which finished 2013 ranked among the 10 best ETFs in terms of asset-gathering proficiency. [Short Duration Bond ETFs See Inflows Soar]
In a recent research note, S&P Capital IQ highlighted two options on the ultra-short duration side of the ETF ledger, including the PIMCO Enhanced Short Maturity ETF (NYSEArca: MINT), one of the largest actively managed ETFs on the market today.
“Despite the recent volatility we have seen in the bond market since the Fed started to slow its bond-buying program, MINT has never gained more than 2.5% or less than 0.45% in a calendar year, including a 0.70% return in 2013,” said S&P Capital IQ in the note.