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Is Cash the Best Asset Right Now? ETFs in Focus

Sanghamitra Saha
Updated
StoneCastle Financial Corp. (BANX) could be a stock to avoid from a technical perspective, as the firm is seeing unfavorable trends on the moving average crossover front

Volatility is the name of the game now thanks to a host of factors ranging from rising rate concerns in the United States, U.S.-Sino trade tensions and the resultant pressure on global growth, geopolitical issues and uncertainty around mid-term. Along with these, JP Morgan Asset Management believes that the near-term threats may include the end of a 10-year bull market in equities.

The entire October has been riotous. The S&P 500 and the Dow Jones are now in the red for the year and the Nasdaq is up by just 2.3% (as of Oct 26, 2018). CBOE Volatility Index, widely viewed as the best gauge of fear in the market, has risen 101% in the past month (as of Oct 26, 2018) (read: 4 Low-Risk ETFs as the S&P 500 Turns Red for 2018).

Morgan Stanley apprehends more selling pressure on Wall Street due to “declining liquidity and growing concerns about peaking growth”. The condition of the bond market is equally appalling as iShares 20+ Year Treasury Bond ETF TLT has lost about 1% due to rising rates.

Against this backdrop, many analysts are suggesting that they will park their money in ultra-short duration cash-like ETFs. AXA Investment Managers has recently commented that “cash is now a genuine asset class.”

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Why Are Ultra-Short Duration Cash-Like ETFs Favored?

Since these have very low duration, these are less susceptible to rising rate worries. Analysts believe cash and short-dated fixed income may play a greater role in providing stabilization in a portfolio.  

Real returns of cash alternatives are improving. Yield on short-term Treasury bills outdoes U.S. inflation, meaning investors can now have real, inflation-adjusted return from cash for the first time in a decade, per Financial Times. Investors should note that yield on three-month treasury note stood at 2.33% on Oct 26, up from 2.23% seen at the start of the month. On the other hand, yields on 10-year Treasury note dropped 1-bp to 3.08% on Oct 26 from what we saw on Oct 1.

So, it is a hot spot right now. U.S. investors put 58% of their investable assets in cash or cash equivalents, based on an investor survey by BlackRock. Vanguard Short-Term Bond ETF BSV has added 0.3% in the past month against a negative decline in long-term treasury bond ETFs.

Against this backdrop, we highlight below a few ultra-short duration bond ETFs, which behave like cash assets but should position investors to scrape through the current tumultuous time (read: 4 Ultra-Short Bond ETFs to Hedge Against Rising Rates).

PIMCO Enhanced Short Maturity Active Exchange-Traded Fund MINT

Its effective duration is 0.36 years while the 30-day SEC yield is 2.52% annually (as of Oct 26, 2018). It is up 0.2% in the past month (see all Money Market/Ultra-Short-Term ETFs here).

iShares Ultra Short-Term Bond ETF ICSH

Its effective duration is 0.41 years while the 30-day SEC yield is 2.62% annually (as of Oct 25, 2018). It is up 0.2% in a month.

JPMorgan Ultra-Short Income ETF JPST

Its 30-day SEC yield is 2.59% while its duration is only 0.51 years. It is up 0.21% in a month.

SPDR SSgA Ultra Short-Term Bond ETF ULST

Its Option Adjusted Duration is 0.24 years while the 30-day SEC yield of the fund is 2.27% annually. The fund has added about 0.2% in a month.

iShares Floating Rate Bond ETF FLOT

Its 30-day SEC yield is 2.51% while its duration is only 0.15 years. It is up 0.1% in a month.

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ISHARS-FL RT BD (FLOT): ETF Research Reports
 
PIMCO-E SMETF (MINT): ETF Research Reports
 
ISHARS-20+YTB (TLT): ETF Research Reports
 
ISHARS-LIQD INC (ICSH): ETF Research Reports
 
JPM-UL SH INCM (JPST): ETF Research Reports
 
SPDR-SSGA US TB (ULST): ETF Research Reports
 
VANGD-SHT TRM B (BSV): ETF Research Reports
 
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Zacks Investment Research
 
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