So how do you choose the right short duration bond ETF for your portfolio? It all depends on your investment goals:
| If your goal is . . . | Try a . . . | Potential iShares solutions |
| Diversification | Multi-sector ETF to help lower interest rate risk but maintain exposure to a range of asset classes. | iShares Short Maturity Bond ETF (NEAR)iShares Core Short-Term U.S. Bond ETF (ISTB) |
| Low risk | U.S. Treasury ETF to seek both reduced interest rate risk and the safety of Treasury bonds. | iShares Short Treasury ETF (SHV)iShares 1-3 Year Treasury Bond ETF (SHY) |
| Credit risk | Credit ETF to help reduce interest rate risk but still have potential for yield by investing in corporate bonds that carry credit risk. | iShares Floating Rate Note ETF (FLOT)iShares 1-3 Year Credit Bond ETF (CSJ)iShares 0-5 Year Investment Grade Corporate Bond ETF (SLQD)iShares 0-5 Year High Yield Bond ETF (SHYG) |
| Declining maturity over time | Term maturity ETF if you have a specific time horizon for your investment, or you want a fund that matures on a specified date and has a final distribution like individual bonds. | iSharesBonds 2016 Corporate Term ETF (IBDA)iSharesBonds 2016 ex-Financials Term ETF (IBCB) |
And if you’re wondering how these exposures compare when it comes to yield (measured by average yield to maturity) and duration, check out the chart below*:
You can’t control when interest rates will rise, but you can prepare your portfolio for that eventuality. Luckily, ETFs make that task a bit easier by allowing investors to employ strategies like reducing portfolio duration in an efficient and customized way.
Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog. You can find more of his posts here.
*Source: BlackRock as of 10/18/13