Mutual funds investing in debt securities are among the most secure investment options, which provide regular income while protecting the capital invested. Funds that are part of this category bring a great deal of stability to one’s portfolio with a large proportion of equity, while providing dividends more frequently than individual bonds.

U.S. government bond funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered the safest in the bond fund category and are ideal for risk-averse investors.

Meanwhile, a short-term government bond fund is a mutual fund that is limited by its investment objectives and fund bylaws to invest primarily in the short-term obligations of the federal government or its agencies. Depending on the fund’s definition, the short term can be up to five years.

Below, we share with you three short-term government bond mutual funds, viz. Empower Short Duration Bond Fund MXSDX, GMO U.S. Treasury Fund GUSTX and Lord Abbett Short Duration Income Fund LALDX. Each has earned a Zacks Mutual Fund #1 Rank (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.

Empower Short Duration Bond Fund invests most of its assets, along with borrowings, if any, in an actively managed portfolio of investment-grade bonds, which includes U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, asset-backed securities, and corporate bonds. MXSDX advisors maintain a dollar-weighted average duration between one and three years on the basis of portfolio managers’ interest rate predictions.

Empower Short Duration Bond Fund has five-year annualized returns of 1.8%. As of the end of March 2023, MXSDX has invested 59.2% of its net assets in Miscellaneous Bonds.

GMO U.S. Treasury Fund invests most of its net assets in Direct U.S. Treasury Obligations and collateralized repurchase agreements that include U.S. Treasury bills, bonds and notes and other securities issued by the U.S. Treasury, as well as Separately Traded Registered Interest and Principal Securities and other zero-coupon securities. GUSTX advisors seek to maintain an estimated interest rate duration of one year or less.

GMO U.S. Treasury Fund has five-year annualized returns of 1.6%. GUSTX has an expense ratio of 0.01% compared with the category average of 0.64%.

Lord Abbett Short Duration Income Fund seeks current income along with preservation of capital by investing most of its net assets in fixed income and debt securities like corporate debt securities of domestic and foreign (including emerging market) issuers, mortgage-backed, mortgage-related, other asset-backed securities and inflation-linked investments. LALDX advisors also invest in securities issued or guaranteed by the U.S. government and its agencies.

Lord Abbett Short Duration Income Fund Class A has five-year annualized returns of 1.4%. Robert A. Lee has been the fund manager of LALDX since December 1998.

To view the Zacks Rank and the past performance of all short-term government bond mutual funds, investors can click here to see the complete list of short-term government bond mutual funds.
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