Rising rate worries are gripping the whole world, crippling the investing scenario again with uncertainty. Volatility may become the name of the game thanks to a host of factors ranging from sticky inflation in the United States and other parts of the developed world, fears of a slowdown in China and the resultant pressure on supply chain and global growth, and geopolitical issues.
Wall Street is likely to see a down August this year. The S&P 500 is off 4% in the past one month. And some analysts believe that more crashes are in the cards as U.S. economic slowdown fears are rife now. As rising rate worries have been prevalent with the Fed likely to hike rates further this year, the bond investing is also at worse. This happens because, bond prices share an inverse relationship with bond yields. Stocks are also at shambles.
CBOE Volatility Index added 17.6% past month but lost 9.4% last week. Whatever be the case, investing sentiment remains edgy. Hence, cash is emerging as a popular asset with some investors. With central banks striving to lower inflation by raising interest rates across the world, those investors expect stock prices to remain volatile in the near term.
No wonder, Enhanced Short-Maturity Strategy ETF MINT and BlackRock Short Maturity Bond ETF NEAR are hovering around 52-week high levels.
Why Buying Cash-Like ETFs Makes Sense Now
The road ahead is a bit unclear. Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio. This is especially true given Fed Chair Jerome Powell indicated on Friday at the Jackson Hole Economic Symposium in Jackson Hole that “additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”
This means that the Fed might keep on hiking rates this year and short-term bond yields will rise alongside.That would result in a similar rate for cash-like assets such as money-market funds.As of Aug 25, 2023 yield on three-month U.S. treasury note was 5.61%, higher than the 10-year note (i.e., 4.25%). One -year note yielded 5.44% while two-year note yielded 5.03%. Moreover, ultra-short-term bonds have lower interest rate risks.
Below we highlight a few money-market ETFs and their performance plus yields.
ETFs in Focus
JPMorgan UltraShort Income ETF (JPST) – Yields 3.71% annually
The JPMorgan Ultra-Short Income ETF seeks to achieve its investment objective by primarily investing in investment grade, U.S. dollar denominated short-term fixed, variable and floating rate debt. The fund charges 18 bps in fees. The fund is flat past month.
Invesco Global Short Term High Yield Bond ETF (PGHY) – Yields 6.75% annually
The underlying DB Global Short Maturity High Yield Bond Index tracks U.S. and foreign short-term, non-investment grade bonds denominated in US dollars and is rebalanced quarterly and re-weighted annually. The fund charges 35 bps in fees. The fund is flat past month.
BlackRock Short Maturity Bond ETF NEAR – Yields 3.52% Annually.
The fund looks to maximize current income through diversified exposure to short-term bonds. Effective Duration of the fund is 0.40 Years and Weighted Avg Maturity is 1.09 years. The fund is up 0.1% past month.
PIMCO Enhanced Short Maturity Active ETF (MINT) – Yields 3.90% Annually.
The PIMCO Enhanced Short Maturity Active ETF is an actively managed exchange-traded fund that seeks greater income and total return potential than money market funds, and may be appropriate for non-immediate cash allocations. The fund is up 0.2% past month.
PIMCO Enhanced Short Maturity Active ETF (MINT): ETF Research Reports
BlackRock Short Maturity Bond ETF (NEAR): ETF Research Reports
Invesco Global Short Term High Yield Bond ETF (PGHY): ETF Research Reports
JPMorgan Ultra-Short Income ETF (JPST): ETF Research Reports
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