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First Cut ETFs
Short-Term Bond ETFs With Comparatively High Yields
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The ongoing record low-interest-rate environment makes it tempting to look beyond bank savings accounts for sources of higher yields. One such alternative is short-term funds. Morningstar defines such funds as having durations of between one year and three-and-one-half years. This level of duration implies a low level of sensitivity to interest rate changes relative to funds with longer durations.
In companion Mutual Fund and ETF First Cut columns this month, we provide an overview of the options available to fund investors.
Among the key criteria used for screening mutual funds were no loads and being open to new investors. Loads are a drag on returns and paying them for money invested in short-term debt instruments doesn’t make much sense.
The passing funds invest in taxable bonds. Both short government and short-term bonds—which can invest in corporate debt—are included. The screen also requires funds to have above-average yields compared to their category. A total of 20 funds met the First Cut’s criteria.
Highest-Yielding Short-Term Bond Funds
| Fund Name | Ticker |
Yield (%) |
Cat Risk Index |
Annualized Return (%) |
Exp Ratio (%) |
Category | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| YTD | Grade | 1-Yr | Grade | 3-Yr | Grade | ||||||
| Thompson Bond | THOPX | 4.5 | 2.19 | (4.7) | F | (3.5) | F | 0.9 | F | 0.71 | Short-Term Bond |
| Frost Total Return Bond Investor | FATRX | 3.6 | 1.67 | 0.3 | F | 0.9 | F | 2.3 | D | 0.73 | Short-Term Bond |
| William Blair Income N | WBRRX | 3.0 | 0.80 | 4.1 | A | 4.6 | A | 3.0 | B | 0.85 | Short-Term Bond |
| USAA Short-Term Bond | USSBX | 2.8 | 1.15 | 3.0 | C | 3.9 | B | 3.1 | B | 0.53 | Short-Term Bond |
| Barings Active Short Duration Bond A | BXDAX | 2.7 | 1.78 | (0.1) | F | 0.6 | F | 1.8 | F | 0.65 | Short-Term Bond |
| Pioneer Short Term Income A | STABX | 2.6 | 2.03 | (0.8) | F | (0.3) | F | 1.7 | F | 0.83 | Short-Term Bond |
| Vanguard Short-Term Invest-Grade Adm | VFSUX | 2.5 | 0.97 | 4.2 | A | 4.9 | A | 3.6 | A | 0.10 | Short-Term Bond |
| Vanguard Short-Term Corp Bd Idx Adml | VSCSX | 2.5 | 1.18 | 4.0 | A | 4.8 | A | 3.8 | A | 0.07 | Short-Term Bond |
| DoubleLine Low Duration Bond N | DLSNX | 2.4 | 1.20 | 1.0 | F | 1.6 | F | 2.2 | D | 0.68 | Short-Term Bond |
| Goldman Sachs Short Duration Inc Inv | GSSRX | 2.4 | 1.22 | 4.4 | A | 5.1 | A | 3.6 | A | 0.53 | Short-Term Bond |
| DWS Short Duration A | PPIAX | 2.4 | 1.30 | 2.9 | C | 3.4 | C | 2.9 | B | 0.77 | Short-Term Bond |
| Russell Inv Short Duration Bond M | RSDTX | 2.4 | 0.59 | 4.2 | A | 4.6 | A | 3.4 | A | 0.54 | Short-Term Bond |
| American Century Short Dur Strt Inc Inv | ASDVX | 2.3 | 1.16 | 3.0 | C | 3.7 | B | 2.8 | C | 0.52 | Short-Term Bond |
| BNY Mellon Short Term Income D | DSTIX | 2.3 | 1.12 | 3.6 | B | 4.2 | B | 2.5 | D | 0.65 | Short-Term Bond |
| Weitz Short Duration Income Investor | WSHNX | 2.3 | 0.87 | 2.5 | D | 2.9 | D | 2.5 | D | 0.55 | Short-Term Bond |
| Thrivent Limited Maturity Bond S | THLIX | 2.2 | 0.99 | 3.0 | C | 3.6 | C | 3.0 | B | 0.43 | Short-Term Bond |
| Northern Short Bond | BSBAX | 2.1 | 0.64 | 2.7 | C | 3.5 | C | 2.8 | C | 0.41 | Short-Term Bond |
| New Covenant Income | NCICX | 2.1 | 0.98 | 5.0 | A | 5.5 | A | 4.0 | A | 0.95 | Short-Term Bond |
| BNY Mellon Short-Term US Govt Secs M | MPSUX | 1.9 | 0.79 | 2.7 | D | 3.0 | D | 2.1 | D | 0.55 | Short Government |
| Trust For Credit Unions Short Dur Inv | TCUEX | 1.9 | 0.94 | 3.7 | B | 3.9 | B | 3.0 | A | 0.35 | Short Government |
| Goldman Sachs Short Dur Govt Inv | GTDTX | 1.8 | 0.84 | 3.4 | C | 3.7 | B | 2.5 | C | 0.56 | Short Government |
| Source: AAII/Morningstar. Data as of 9/30/2020. | |||||||||||
While it can be tempting to look primarily at yield, consider a fund’s overall characteristics. Thompson Bond’s 
(THOPX) yield of 4.5% is offset by its year-to-date loss of 4.7%. The fund’s category risk of 2.19 implies that it’s more than twice as risky as its category peers. For bond funds, this is frequently a sign of a fund investing in riskier securities.
Expense ratios also matter. The New Covenant Income fund’s (NCICX) expense ratio is 0.95%. This is a steep fee to pay for a fund with limited capital appreciation potential. Out of the entire group, only five funds have expense ratios below 0.50%. Put another way, reaching for yield via short-term bond funds isn’t necessarily cheap. ▪
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