Due to the inverted yield curve, short-term bonds now have higher yields at maturity than longer-term bonds. Moreover, with the Fed funds rate expected to remain higher for longer, it could be prudent to invest in short-term bond ETFs PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT), JPMorgan Ultra-Short Income ETF (JPST), and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) as they are less sensitive to interest rate changes and offer a steady dividend income. They are also top-rated in our proprietary POWR Ratings system. Read more….

Short-term bond ETFs have grabbed investors’ attention after the Federal Reserve projected a longer-than-expected period of high-interest rates. Even though the Fed might hold rates at the next monetary policy meeting, it will unlikely start cutting rates anytime soon. The higher for longer federal funds rate will benefit short-term bond ETFs.

To that end, investors could consider investing in short-term bond ETFs PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT), JPMorgan Ultra-Short Income ETF (JPST), and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL). These ETFs are top-rated in our proprietary POWR Ratings system.

Before diving deeper into these ETFs, let’s discuss what are short-term bond ETFs and why it could be prudent to invest in them now.

Short-term bonds are fixed-income securities with relatively short maturities, with an average maturity of not more than three years. These bonds are less sensitive to changes in interest rates than bonds with longer maturity dates. Short-term bond ETFs own fixed-income securities with relatively short maturities. The short-term aspect of these bonds acts as a cushion against rising rates.

Investing in short-term bonds through ETFs offers several advantages, including lower trading costs, flexibility and accessibility, diversification across different bonds and sectors, and professional management. Moreover, short-term bond ETFs are popular amongst investors for their consistent stream of interest income from the bonds present in the fund portfolio, making them a less risky source of generating stable returns.

The yields on short-term treasury bonds with maturities of up to two years are currently above 5%, the highest yield on these securities since June 2007. The near-risk-free short-term bonds attract investors in a highly challenging macroeconomic environment as the U.S. government would have to fulfill its commitment to bondholders irrespective of the prevailing economic conditions.

Moreover, the dividends paid by these short-term bond ETFs provide stability to one’s portfolio through a reliable and predictable source of income, making them attractive investment options.

Although the Fed is unlikely to raise interest rates at the next monetary policy meeting from October 31 to November 1, resilience in certain parts of the economy has spurred concerns that the central bank could hold rates at their current level for longer than anticipated. The inverted yield curve, along with higher for longer interest rates, make short-term bond ETFs attractive.

Considering these conducive trends, let’s evaluate the three Ultra-Short Term Bonds ETF picks, starting with number 3.

ETF #3: PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT)

Launched and managed by Pacific Investment Management Company LLC, MINT invests in fixed-income markets of global regions. The fund invests in U.S. dollar-denominated investment-grade debt securities such as bonds and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities rated Baa or higher by Moody’s or equivalently rated by S&P and Fitch. It seeks to benchmark the performance of its portfolio against the FTSE 3-month Treasury Bill Index.

With $10.80 billion in assets under management, MINT’s top holding as of October 27, 2023, is the U.S. Dollar with a 3.56% weighting, followed by BOEING CO SR UNSECURED 02/24 1.433, with a 0.91% weighting, and NOMURA HOLDINGS INC SR UNSECURED 01/25 2.648, with 0.89%. It has a total of 711 holdings.

MINT has an expense ratio of 0.36%, lower than the category average of 0.40%. MINT’s fund inflows were $1.20 billion over the past month and $2.48 billion over the past six months. It currently has a NAV of $100.13.

The fund’s annual dividend of $4.39 yields 4.38% on the current share price. Its four-year average yield is 1.67%. Its dividend payouts have increased at a CAGR of 38.8% over the past three years and 16% over the past five years.

MINT has gained 1.5% year-to-date and 1.7% over the past year to close the last trading session at $100.12.

MINT’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

MINT has an A for Buy & Hold and Trade and a B for Peer. Of the 33 ETFs in the A-rated Ultra-Short Term Bonds group, it is ranked #3. Click here to access all of MINT’s POWR Ratings.

ETF #2: JPMorgan Ultra-Short Income ETF (JPST)

JPST was launched and managed by J.P. Morgan Investment Management Inc. It invests in fixed-income markets in the United States. The fund invests in the U.S. dollar-denominated short-term fixed, variable, and floating rate debt and maintains one year or less duration. It invests in investment-grade securities rated as Baa3 or above by Moody’s and BBB- or above by S&P or Fitch. The fund benchmarks the performance of its portfolio against the ICE BofAML 3-Month US Treasury Bill Index.

With $23.06 billion in AUM, the fund has 638 holdings. JPST’s top holding is JPMorgan US GOVT MMKT FUN, with a 7.09% weighting. It is followed by UNITED 0.375% 07/24, with a 2.21% weighting, followed by SKANDIN ENS ZERO 11/23, with a 1.04% weighting, and CITIZENS BANK VAR 01/26, with 0.99%.

JPST has an expense ratio of 0.18%, lower than the category average of 0.68%. It currently has a NAV of $50.20. Its fund inflows came in at $300.18 million over the past month and $441.42 million over the past year.

The ETF pays an annual dividend of $2.69, which yields 5.36% on the current price. Its dividend payouts have increased at a CAGR of 43% over the past three years and 23.3% over the past five years. It has a four-year average dividend yield of 2.22%.

JPST has gained 0.1% year-to-date and 0.2% over the past year to close the last trading session at $50.20.

JPST’s solid outlook is reflected in its POWR Ratings. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Buy & Hold and Trade. It is ranked #2 in the same group. To access JPST’s POWR Rating for Peer, click here.

ETF #1: SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)

BIL was launched by State Street Global Advisors, Inc. The fund is managed by SSGA Funds Management, Inc. It invests in the fixed-income markets of the United States. The fund invests in U.S. dollar-denominated fixed rate and non-convertible investment grade U.S. Treasury bulls, which have a remaining maturity of greater than or equal to 1 month and less than 3 months. It seeks to track the performance of the Bloomberg 1-3 Month U.S. Treasury Bill Index.

With $36.30 billion in AUM, BIL’s top holding is Treasury Bill 11/23, with an 11.22% weighting, followed by Treasury Bill 11/23, with a 10.33% weighting, and Treasury Bill 12/23, with 7.97%. It has a total of 19 holdings.

BIL has an expense ratio of 0.14%, lower than the category average of 0.16%. BIL’s fund inflows came in at $4.83 billion over the past month and $8.77 billion over the past year. It currently has a NAV of $91.80.

The ETF pays an annual dividend of $3.99, which yields 4.35% on the current price. Its dividend payouts have increased at a CAGR of 83.8% over the past three years and 25.8% over the past five years. It has a four-year average dividend yield of 1.09%.

BIL has gained 0.4% year-to-date and 0.3% over the past year to close the last trading session at $91.82.

BIL’s POWR Ratings are consistent with its promising outlook. The ETF has an overall A rating, which equates to Strong Buy in our proprietary rating system.

It also has an A grade for Buy & Hold, Peer, and Trade. It is ranked first within the Ultra-Short Term Bonds group. Click here to access all the ratings of BIL.

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BIL shares rose $0.01 (+0.01%) in premarket trading Tuesday. Year-to-date, BIL has gained 4.01%, versus a 10.08% rise in the benchmark S&P 500 index during the same period.


About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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