Using Short-Duration Bond ETFs in a Rising Rate Environment


Fixed-income investors should consider the benefits of short-duration, cash-based alternative exchange-traded fund strategies to hedge against lingering bond market risks and deliver returns along the way.

In the next webcast, Buyer beware or act now? Implementation Ideas for Ultra-Short Fixed Income, Ben Becker, an exchange-traded fund (ETF) specialist at Goldman Sachs Asset Management, noted that the U.S. fixed-income ETF industry has grown tremendously over the years. The industry’s assets under management have nearly doubled every 3.5 years since the category’s inception and now stand at nearly $1.3 trillion, and there’s even more room for growth as the fixed income ETF market is only a small portion, 2%, of the US total. debt market.

Alexandra Lawson, Fixed Income Client Portfolio Manager at Goldman Sachs Asset Management, described the current fixed income market environment with the prospect of rising interest rates. History shows that yields will rise as the outlook for growth and inflation improves, which makes short durations more favorable.

Consequently, dramatic rate increases have now created opportunities for fixed income investors. Lawson pointed out that 1-year US Treasury yields have risen 258 basis points since the start of the year to account for ever-higher inflation and more aggressive Federal Reserve policy. Short-duration strategies could complement both cash and longer-dated bond allocations, offering potentially lower volatility compared to longer-dated bonds while preserving most of the carry. Additionally, investors should keep in mind that both ultra-short and short-duration bonds have exhibited strong risk/reward profiles over recent Federal Reserve hikes.

“Despite recent market volatility, investors can benefit from higher starting yields and better return potential at the front of the curve, creating strong risk/reward potential,” Lawson said.

Becker pointed to Goldman Sachs Asset Management’s Access ETF suite as part of the next generation of bond ETF strategies that has helped investors gain exposure to the fixed income market with the guidance of an investment manager. seasoned assets. Goldman Sachs Access ETFs offer exposure to important credit metrics embedded in a passive, rules-based methodology. They seek to provide the best execution and business management with extensive industry relationships. Additionally, risk management and optimization helps to measure risk and minimize tracking errors.

For example, the Goldman Sachs Access Ultra Short Bond ETF (GSST) provides exposure to a broad universe of very short duration, high quality fixed income securities. The ETF attempts to generate potentially higher returns compared to traditional money market funds while seeking to preserve capital.

Moreover, the Goldman Sachs Treasury Access 0-1 Year ETF (NYSEArca: GBIL) seeks to mirror the performance of the Citi US Treasury 0-1 Year Composite Select Index, which is composed of US Treasury bonds with a maximum residual maturity of 12 months. US Treasury bonds refer to securities issued by the US Treasury, where the US government guarantees payment of principal and interest.

“Access ETFs seek to provide investors with exposure to a certain asset class or market beta. We aim to enhance exposure to market beta rather than redefine it and seek to find smart methods to this exhibit,” Becker said.

“Access ETFs focus on risk-adjusted returns by minimizing exposure to tail risk in fixed income markets. We believe that applying liquidity criteria, a technical or fundamental filter can minimize exposure to less liquid or fundamentally stressed securities,” added Becker.

The strategists explained that using GBIL and GSST to construct your short-duration fixed-income portfolio can provide yield and duration flexibility depending on risk preferences. Additionally, by expanding the investable universe of GBIL’s Treasuries universe to include securitized and corporate fixed income securities, GSST seeks to add additional yield opportunities.

Financial advisors who wish to learn more about alternative short-term cash strategies can watch the webcast here on demand.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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