Escalating trade tensions with China and now possibly Mexico is driving an increasing number of investors toward portfolio hedges to assuage volatility and growing risk exposure. To this end, novice investors and institutions alike are turning their attention towards safe havens like bonds, driving the price of debt up, and interest rates down, shining a light on bond ETFs like the iShares Short Treasury Bond ETF (SHV).
The iShares Short Treasury Bond ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities between one month and one year. The fund offers investors exposure to U.S. Treasury bonds that mature in less than 1 year. In addition, SHV provides targeted access to a specific segment of the U.S. Treasury market, those with short-term maturities. Investors can use the ETF to customize your exposure to Treasuries.
With the advent of bond ETFs, many have turned to short-term duration bonds, like SHV. Bond funds may buy and sell a number of debt securities to achieve their target short, intermediate, or long-term goals.
Short-term bonds are appealing to many investors because they don’t insist that you to lock up your money for long holding periods. They’re typically advisable for those who will need to spend their invested money in the near future, but they can also be useful even for long-term investors. As an example, if you expect an increase in interest rates over the short term, then investing in a short-term bond will let you reinvest the money at maturity in a bond that by then should be paying a much higher interest rate.
With an ETF like SHV, investors will have access to a portfolio of debt holdings that will have an average effective duration for investors to gauge interest rate risk, rather than just one particular bond, making SHV useful and potentially popular as the Fed eyes rate hikes.
To hedge rate risk, ETF investors have funneled close to $6 billion into SHV so far this year; Investors put $2.5 billion into SHV in April alone.
SHV tracks the ICE U.S. Treasury Short Bond Index, which is comprised of U.S. Treasury obligations with a maximum remaining term to maturity of 12 months.
For more fixed income ETF ideas, visit our Fixed Income Channel.