Short-Duration Bond ETFs to Mitigate Potential Volatility | ETF Trends

Due to ongoing uncertainty over the Federal Reserve’s interest rate outlook, fixed-income investors should stick to short-term bond exchange traded funds.

Because of the potential volatility, “investors should be flexible and consider more liquid securities. Fixed income with shorter maturities is one starting place,” Bill Gross told Reuters.

Specifically, Gross, who left PIMCO to manage fixed income strategies at Janus Capital Group, argues that the Fed could hold off on interest rate hikes until late this year if at all as global growth remains sluggish and inflation remains low.

“With the dollar strengthening and oil prices declining, it is hard to see even the Fed raising short rates until late in 2015, if at all,” Gross argued. [Inflation Is Not Traveling in the Right Direction]

Consequently, due to the potential uncertainty, Gross suggests sticking to short-duration bonds to mitigate any volatility.

ETF investors can also manage risk exposure by shifting down the yield curve. For instance, short-term Treasury bond ETF options include the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY), which has a 1.93 year duration and a 0.51% 30-day SEC yield, Schwab Short-Term U.S. Treasury ETF (NYSEArca: SCHO), which has a 1.93 year duration and a 0.37% 30-day SEC yield, and Vanguard Short-Term Government Bond ETF (NYSEArca: VGSH), which has a 1.9 year duration and a 0.53% 30-day SEC yield.