Today’s low-yield environment is increasing the allure of high-yielding fixed-income assets, but plenty of investors still like the safety and added income of short-term bond funds. Just look at the PGIM Ultra Short Bond ETF (NYSEArca: PULS).
The actively managed PULS meets the increased demand for ultra-short-duration debt exposure to allow fixed-income investors gather decent yields with minimal risk. PULS’s risk-managed and short duration approach is designed to provide investors a hedge against rising rates and enhance or diversify a cash management strategy.
Confirming that advisors and investors are still embracing short-term bond ETFs, PULS has seen nearly $208 million in 2020 inflows, pushing the fund into the exclusive $1 billion in assets under management club.
“The investment objective of PGIM Ultra Short Bond ETF is to seek total return through a combination of current income and capital appreciation, consistent with preservation of capital,” according to PGIM.
PULS, which turns two years old in April, has a duration of just 0.2 years, according to issuer data.
As investors consider the potential headwinds and volatility going into 2020, many are looking into defensive areas to safeguard their wealth, such as bond-related ETF strategies.
The fund is actively managed and competitively priced at 15 basis points, or 12 basis points lower than the average active ETF in its category. The active ETF also tries to generate a diversified source of alpha through high-quality positioning that covers consistent and sustainable sources across investment-grade sectors to help maintain the stability of principal.
PULS can include corporate securities, asset-backed securities, mortgage-backed and mortgage-related securities, and high-quality money market instruments such as commercial paper and certificates of deposit. In fact, 56.2% of the fund is currently allocated to fixed and floating corporate bonds.
Credit risk is minimal as about 78% of the fund is allocated to bonds rated AAA, AA, and A.
The ETF’s portfolio follows an ultra-short duration, risk-managed approach that helps fixed-income investors to hedge against rising rates while enhancing or diversifying a cash management strategy. When you look at this strategy, it’s not cash, but it must be close from a liquidity management and duration perspective, and that’s how they plan to manage it.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.