Keeping it Short With Bonds is Paying Off

By Todd Shriber via

Reacting to rising interest rates, fixed income investors often shift to lower duration bonds and the related funds, a move that has been on full display this year. Of the two fixed income exchange traded funds (ETFs) that are among this year’s top 10 asset-gathering ETFs, both are low or ultra-low duration products.

Conversely, the three bond ETFs populating the list of the 10 worst ETFs in terms of assets lost are medium-term bond funds. Some newer ETFs are benefiting from investors’ thirst for ultra-low duration fare, including the JPMorgan Ultra-Short Income ETF (JPST). The JPMorgan Ultra-Short Income ETF debuted in mid-May 2017. Thanks to year-to-date inflows of $3.59 billion, the JPMorgan Ultra-Short Income ETF had $3.70 billion in assets under management as of November 16th, easily making it one of the most successful bond ETFs to launch last year.

The fund aims for a duration of one year or less. That objective is being accomplished with ease as highlighted by JPST’s duration of 0.53 years as of October 31st. By comparison, the widely followed Bloomberg Barclays US Aggregate Bond Index has an effective duration of 5.85 years. While JPST actively seeks to manage interest rate risk, it is able to capture a significant percentage of the Bloomberg Barclays US Aggregate Bond Index’s yield, as the chart below indicates.

As of November 16th, the JPMorgan Ultra-Short Income ETF had an unsubsidized 30-day SEC yield of 2.71 percent compared with 3.35 percent on the Bloomberg Barclays US Aggregate Bond Index, but a fair trade nonetheless when considering JPST’s significantly lower duration.

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