By Todd Shriber via

As of the end of October, the Federal Reserve hiked interest rates three times this year with many fixed income market participants still betting on a fourth rate increase coming in December. A predictable reaction of the Fed’s 2018 tightening efforts is investors departing long-dated bonds and the related exchange traded funds (ETFs) in favor of lower duration alternatives.

On a year-to-date basis, the two top bond ETFs in terms of assets added are a short duration Treasury fund and a floating rate fund. That theme is continuing the fourth quarter where the top asset-gathering fixed income ETFs are of the ultra-short variety.

In many cases, trimming duration also means reducing yield. For example, the ICE U.S. Treasury Short Bond Index and the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index have 30-day SEC yields of just 2.15 percent and 1.96 percent, respectively.

Fixed income investors looking to manage interest rate risk while still maintaining a decent income profile can consider short-dated and ultra-short municipal bonds. Until recently, there were no ETFs dedicated to ultra-short municipal bonds. The JPMorgan Ultra-Short Municipal ETF (JMSTchanged that.

Actively managed, the JMST holds 214 municipal bonds, comprised primarily of investment-grade fixed, floating-rate and variable-rate securities.

Good Timing

Broadly speaking, municipal bond strategies have been better than longer duration bond funds this year. In this case, “better” means “less bad.” The S&P National AMT-Free Municipal Bond Index, which has an effective duration of 6.14 years, is lower by nearly 1.20 percent this year.

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