The rapidity of U.S. tariff announcements and almost immediate delays this week resulted in a spike of market volatility. Those advisors and investors concerned about trade wars, inflation, interest rates, and more this year would do well to consider the KraneShares Sustainable Ultra Short Duration Index ETF (KCSH). The strategy seeks income through ultra-short corporate bond exposures that carry reduced interest rate and default risk.
U.S. tariffs on Mexico and Canada received a 30-day pause on Monday while China tariffs of 10% went into effect. Sharp market declines ahead of the pause underscore the risk factors at play in markets this year. Inflation, interest rates, potential trade wars, geopolitical risks, and more create a complex market environment this year.
Ultra-short duration bonds often hold appeal during periods of enhanced risk and market stress. With lower interest rate exposures, these strategies could be well positioned this year. They offer a way to push cash to work when investors prefer the relative safety of cash and cash alternatives. Ultra-short duration bonds also offer ongoing diversification opportunities within a bond portfolio.
Seek Income While Diversifying Your Bond Portfolio
The KraneShares Sustainable Ultra Short Duration Index ETF (KCSH) seeks to track the Solactive ISS Sustainable Select 0-1 Year USD Corporate IG Index. The index measures the performance of investment-grade corporate bonds with maturities up to one year. The fund generated a 30-day SEC yield of 4.36% as of February 3, 2025 and offers better returns than the Agg since inception.
Investment-grade bonds offer a historically lower risk of default compared to noninvestment-grade bonds. IG bonds also offer the potential for reliable yields for investors. The bonds KCSH invests in are U.S. dollar-denominated, and the strategy seeks to offer similar credit and interest rate risk as ultra-short duration IG bond benchmarks.
While offering valuable diversification within bonds, the fund’s strategy also provides an enhanced level of diversification through its focus on those companies aligned with the Paris Agreement. Companies whose bonds are included must work to curtail global emissions to 1.5 degrees Celsius by 2050.
Issuers included in the Index must demonstrate self-decarbonization of 7% or greater each year before their inclusion in the portfolio. The strategy also excludes issuers that derive revenues from fossil fuels and other sources. The added screen creates a diversified portfolio within ultra-short bonds.
KCSH makes a strong complement to existing ultra-short bond exposures and a general diversifier for fixed income portfolios. The fund carries an expense ratio of 0.20% with fee waivers that expire August 1, 2025.
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