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
DiversificationMulti-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 riskU.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 riskCredit 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 timeTerm 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

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