Bond investors looking for the benefits of short duration fare coupled with active management have several exchange traded funds to consider. That group includes the SPDR DoubleLine Short Duration Total Return Tactical ETF (Cboe: STOT).
Bond investors who still want to hold onto fixed-income assets in a rising interest rate environment ahead may consider actively managed strategies that are able to quickly modify holdings to adjust to a changing environment.
With some bond market observers believing 10-year Treasury yields can ascend above 3% and stay at those levels, short duration funds like STOT are increasingly appealing.
“There has not been a 3% US 2-year yield since 2008, and it’s worth noting this rate is higher than the US 2-year rate of 2.80% forecasted by economists for end of year 2018,” said State Street Global Advisors (SSgA) in a recent note. “At the very least, the sensitivity analysis forms a bear case quantitative measure, realizing that past performance is not indicative of future results and exogenous variables could disrupt the historical sensitivity pattern.”
STOT Advantages
STOT, which recently turned two years old, “provides actively managed exposure to short duration fixed income with a dollar weighted average effective duration between one and three years,” according to SSgA.
The fund has an option-adjusted duration of just 2.24 years. STOT seeks to maximize current income with a dollar- weighted average effective duration between one and three years. STOT is managed by Jeffrey Gundlach, chief executive officer and chief investment officer of DoubleLine Capital, Philip Barach, DoubleLine president and Jeffrey Sherman.
Related: Why Bond Investors Should Look Beyond Index ETFs
“Given bonds’ performance since the end of 2016 and their current composure based on yield, duration and credit spread, investors may be well served to focus on their short-term positions, focusing on floating rates (investment grade and senior loans) that have the most optimal yield and duration exposure (yield per unit of duration),” said SSgA.
STOT holds just over 200 bonds and has a current yield of 2.48%. With Treasuries and mortgage-backed securities (MBS) representing nearly two-thirds of the fund’s weight, credit risk is not an issue as highlighted by an almost 73% weight to AAA-rated bonds.
For more information on the fixed-income space, visit our bond ETFs category.