It was just a matter of time before the fixed income market would catch up to equities when it came to environmental, social, and governance (ESG) exposure. With respect to an ultra-short bond focus, there’s one exchange traded fund (ETF) worth considering: the Calvert Ultra-Short Investment Grade ETF (CVSB).
Given the risk of rate hikes amid the U.S. Federal Reserve’s wrangling with inflation, short-term bonds have been the prime option to consider when it comes to fixed income exposure. While there are a plethora of options for a short-term bond strategy, CVSB adds the ESG aspect investors are looking for these days — the duality of bond exposure that also aligns with their investment values.
Per its fund description, CVSB seeks to maximize income, to the extent consistent with preservation of capital, through investment in short-term bonds and income-producing securities. Essentially, investors get key exposure to bonds of the ultra-short variety that Calvert believes are demonstrating effective management of ESG risks and opportunities.
Dynamic Exposure to Bond Market
One of the highlights of CVSB is its active management that offers investors more dynamic exposure to the bond market as opposed to a set-if-and-forget-it passive index. This aids to minimize rate risk, which, as mentioned earlier, is essential given the current tightening by the U.S. Federal Reserve.
Even if the Fed eventually decelerates its rate hikes, investors can still capitalize on bond price appreciation and mitigate rate risk if the Fed continues its hawkishness. Either way, it’s an alternate method to get short-term bond exposure if investors are looking to park their cash in a bond fund temporarily in order to extract a higher rate of return.
As of April 11, the 30-day SEC unsubsidized yield is 5.6% and the average duration is 0.58 years. Furthermore, the fund comes with a low expense ratio of 0.24%, especially given its active management component.
That active strategy allows the portfolio managers to tailor the fund’s holdings given current market conditions, offering a bespoke ESG bond portfolio. In addition to rate risk, credit risk is also minimized by sticking with investment grade bonds for quality exposure.
Looking at its holdings more specifically, holdings don’t exceed 3% of the fund, which helps to also minimize concentration risk. Its vast array of holdings (over 100 as of March 31) also adds to the diversification of the fund, providing further mitigation of concentration risk and casts a wider net when extracting more yield.
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