It’s been well-documented that famed value investor and Berkshire Hathaway CEO Warren Buffett is a strong proponent of investing in equities rather than bonds, telling CNBC that he’d “choose equities in a minute.”
“If you had to choose between buying long-term bonds or equities, I would choose equities in a minute,” Buffett told CNBC’s “Squawk Box” in an interview earlier this year. “If I were going to own a 30-year government bond or own equities for 30 years, I think equities will considerably outperform that 30-year bond.”
Buffett continued to lambaste bonds, telling Berkshire Hathaway shareholders in an annual letter that debt issues were not a lower-risk investment over the long term compared to stocks. Furthermore, he advised investors to keep their funds allocated in equities due to the negative impact caused by inflation on the purchasing power of fixed-income holdings.
“I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier — far riskier — than short-term U.S. bonds,” Buffett wrote. “As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
Given his distaste for bonds, particularly in the long-term, here are some fixed-income ETFs that Buffett would like for investors with respect to the short-term horizon. Shorter duration exposure to fixed-income securities, especially high-yield corporate bonds, would be the bond equivalent of the “margin of safety” that Buffett covets.
1. Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH)
VCSH tracks the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index–a market-weighted corporate bond index with a short-term dollar-weighted average maturity. In addition to VCSH allocating capital towards debt issues that are investment-grade, Buffett will like the reduced exposure to duration with maturities between 1 and 5 years. Per Yahoo! performance figures, VCSH has generated returns of 1.60% in the last three years.
2. iShares 1-3 Year Credit Bond ETF (NASDAQ: CSJ)
CSJ tracks the investment results of the Bloomberg Barclays U.S. 1-3 Year Credit Bond Index so CSJ will invest at least 90% of its assets in investment-grade corporate debt and sovereign, supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated. CSJ invests in debt issues with a remaining maturity of greater than one year and less than or equal to three years to minimize credit risk. For the last three years, CSJ has been able to generate 1.03% according to Yahoo! Finance performance figures.
3. SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB)
SPSB seeks investment results that correlate with the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index, which is designed to measure the performance of the short term U.S. corporate bond market. Like VCSH and CSJ, SPSB focuses on investment-grade holdings with short durations to hedge against credit risk–something a value investor like Buffett could even appreciate. Based on Yahoo! Finance, SPSB has been able to generate a 1.28% return for investors within the last three years.
Related: Global Fixed Income Views: Q3 2018
For more fixed-income ETF trends, visit the Fixed Income Channel.