With the Federal Reserve’s benchmark interest rate, the Fed funds rate, currently at 5.5%, its highest level in nearly two decades, investors are increasingly drawn to cash-like investments. This surge in interest has caused them to reconsider riskier assets, such as stocks.
While the Fed may choose to keep rates steady this month, there has been no official announcement regarding the end of rate hikes. In fact, it is becoming more plausible that interest rates could remain elevated for a longer period than initially anticipated, which has surprised many economists and analysts who have had to adjust their growth forecasts accordingly.
The consistent strength of the U.S. economy has left experts puzzled and has diminished concerns of an impending recession. As a result, there has been a rise in U.S. Treasury yields, with the yield on 2-year bonds recently surpassing 5%.
Investors have been flocking to short-term bond ETFs due to the appeal and higher returns of cash-like investment options. This trend was particularly evident in August when $7 billion flowed into ultra-short bond ETFs, a significant shift from the previous four months’ outflows. As we enter September, the trend of substantial investments in cash-like ETFs remains strong.
Here are five short-term bond ETFs that not only provide attractive returns but also offer a protective shield against potential stock market downturns:
1. iShares 0-3 Month Treasury Bond ETF (NYSE: SGOV): This ETF concentrates on ultra-short-term U.S. Treasury bills, making it a low-risk option for stability-seeking investors. It has an asset under management (AUM) of $14.2 billion, with a year-to-date performance of 0.2% as of September 7, 2023. It has seen flows of $1.9 billion in the past month and $220 million in the past week.
2. Goldman Sachs Access Treasury 0-1 Year ETF (NYSE: GBIL): This ETF tracks U.S. Treasury securities that have maturities of 0 to 1 year, providing a short-term, low-risk investment avenue. It has AUM of $5.99 billion, with a year-to-date performance of 0.1% as of September 7, 2023. It had flows of $573 million in the past month and $38 million in the past week.
3. SPDR Portfolio Short Term Treasury ETF (NYSE: SPTS): This ETF offers investors a portfolio of short-term U.S. Treasury securities, combining a low-risk profile with shorter durations. It has AUM of $5.54 billion, with a year-to-date performance of -0.69% as of September 7, 2023. In the past month, it had flows of $64 million, and in the past week, it had flows of $127 million.
4. iShares 1-3 Year Treasury Bond ETF (NYSE: SHY): This ETF provides exposure to U.S. Treasury securities that have maturities ranging from 1 to 3 years, offering a conservative option with slightly longer durations. It has AUM of $26 billion, with a year-to-date performance of -0.4% as of September 7, 2023. It had flows of $276 million in the past month and $154 million in the past week.
5. iShares 1-5 Year Investment Grade Corporate Bond ETF (NYSE: IGSB): This ETF gives investors access to a diversified portfolio of investment-grade corporate bonds that have maturities ranging from 1 to 5 years, striking a balance between corporate credit risk and relatively shorter durations. It has AUM of $22.4 billion, with a year-to-date performance of 0.2% as of September 7, 2023. It had outflows of -$1.1 billion in the past month and -$486 million in the past week.
Despite the Fed signaling steady interest rates, the U.S. dollar continues to strengthen. To find out why, read: “Why Is The US Dollar On Fire Despite Fed’s Steady Interest Rate Signals?”
