As the Federal Reserve continues its tightening cycle, some fixed income investors are moving to short-term bond funds.
Corporate bonds should be part of that conversation and the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB) is one exchange traded fund that can help investors stick with this income-generating asset class while reducing interest rate risk.
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.
“While one could choose plain cash, the real rate of cash is negative; with inflation chipping away at value, a cash holding actually declines in value over time,” according to Investopedia.
The fund generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index or in securities that have similar economic characteristics to those of the securities that comprise the index. Since the index is designed to measure the performance of the short term U.S. corporate bond market, it gives investors a solid mix of interest rate risk hedging while limiting duration. SPSB has provided investors with a 1.28% return the last three years.
Cost-Effective Exposure
SPSB is part of State Street’s suite of SPDR portfolio ETFs, a group of low-cost funds designed to be core portfolio holdings for cost-conscious investors. Last year, the issuer lowered the fees on a broad swath of ETFs, including SPSB.
SPSB charges just 0.07% per year, or $7 on a $10,000 investment, making it one of the least expensive short-dated corporate bond funds on the market. The fund holds nearly 1,100 bonds with an option-adjusted duration of 1.87 years and an average yield to worst of 3.21%.
“Without government-guaranteed bonds in its $4 billion basket, though, SPSB generally enjoys higher returns than its rival. The flip side of this is that SPSB is also somewhat more volatile than government bond funds,” reports Investopedia.
Year-to-date, investors have added $1.03 billion to SPSB.
For more trends in fixed income, visit the Fixed Income Channel.