Short-term bond ETFs for investors looking beyond savings accounts for sources of higher yields.
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As a companion to this month’s Mutual Fund First Cut article, we screened the exchange-traded fund (ETF) universe for short-term bond ETFs. The goal was to provide a list of investment candidates for those who are looking beyond bank savings accounts for sources of higher yields.
We used just four criteria in our search. Passing ETFs had to belong to the fixed-income global asset class. Their yield had to be higher than the average of their category peers. Finally, the passing ETFs had to belong to the short government or short-term bond categories. Morningstar defines such funds in these categories as having durations of between one year and three-and-one-half years.
Highest-Yielding Short-Term Bond ETFs
| Fund Name | Ticker |
Yield (%) |
Cat Risk Index |
Annualized Return (%) |
Exp Ratio (%) |
Category | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| YTD | Grade | 1-Yr | Grade | 3-Yr | Grade | ||||||
| Western Asset Short Duration Inc. ETF | WINC | 3.9 | -- | 1.7 | F | 3.6 | D | -- | -- | 0.29 | Short-Term Bond |
| Hartford Short Duration ETF | HSRT | 3.1 | -- | 2.4 | D | 3.4 | D | -- | -- | 0.30 | Short-Term Bond |
| Nuveen EY 1-5 Year US Aggt Bd ETF | NUSA | 2.8 | 0.89 | 4.2 | A | 5.0 | A | 3.6 | B | 0.20 | Short-Term Bond |
| PIMCO Enhanced Low Duration Active ETF | LDUR | 2.7 | 0.98 | 3.9 | C | 4.6 | C | 3.2 | D | 0.79 | Short-Term Bond |
| iShares Short-Term Corporate Bond ETF | IGSB | 2.6 | 1.43 | 4.1 | B | 5.1 | A | 4.1 | A | 0.06 | Short-Term Bond |
| iShares 0-5 Year Invmt Grade Corp Bd ETF | SLQD | 2.6 | 1.15 | 3.8 | C | 4.6 | C | 3.6 | B | 0.06 | Short-Term Bond |
| Vanguard Short-Term Corporate Bond ETF | VCSH | 2.6 | 1.45 | 4.0 | B | 4.9 | B | 3.9 | A | 0.05 | Short-Term Bond |
| AdvisorShares Newfleet Mult-Sect Inc ETF | MINC | 2.5 | 1.52 | 2.2 | D | 2.8 | D | 2.7 | D | 0.76 | Short-Term Bond |
| iShares Core 1-5 Year USD Bond ETF | ISTB | 2.4 | 0.73 | 3.9 | C | 4.6 | C | 3.4 | C | 0.06 | Short-Term Bond |
| VictoryShares USAA Core Shrt-Trm Bd ETF | USTB | 2.4 | -- | 4.1 | B | 4.8 | B | -- | -- | 0.34 | Short-Term Bond |
| Franklin Liberty Short Dur US Govt ETF | FTSD | 1.9 | 0.52 | 2.6 | F | 3.2 | F | 2.3 | F | 0.25 | Short Government |
| iShares Agency Bond ETF | AGZ | 1.7 | 2.04 | 5.9 | A | 5.7 | A | 4.3 | A | 0.20 | Short Government |
| Schwab Short-Term US Treasury ETF | SCHO | 1.7 | 1.06 | 3.1 | C | 3.6 | B | 2.6 | B | 0.05 | Short Government |
| Vanguard Short-Term Treasury ETF | VGSH | 1.6 | 1.02 | 3.1 | B | 3.6 | C | 2.6 | A | 0.05 | Short Government |
| Source: AAII/Morningstar. Data as of 9/30/2020. | |||||||||||
Just 14 ETFs met this very basic screen. The small number is due to the size of the pond we are fishing in. There are only 33 taxable short-term bond ETFs listed on U.S. exchanges.
Three of the passing ETFs have been in existence for less than three years. Thus, while the 3.9% and 3.1% yields for Western Asset Short Duration Inc. ETF (WINC) and Hartford Short Duration ETF (HSRT), respectively, may seem enticing, there is not a long enough return history to assess their relative risk. In general, bond fund managers realize higher yields by investing in riskier debt, investing in longer-dated bonds or investing in a combination of the two. The return data shows both ETFs faring worse than their peers so far.
Expense ratios are lower overall for the short-term ETFs than they are for their mutual fund counterparts. All but three of the passing ETFs have an expense ratio of 0.30% or less.
The AdvisorShares Newfleet Multi-Sector Income ETF (MINC) stands out for its high expense ratio of 0.76%. Notably, this ETF’s category risk index is one of the highest of the group, and its returns have lagged the category average. These characteristics show why it’s important to consider all of an ETF’s traits as opposed to just its yield. ▪
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