Is the value in cash-based ETFs right now?

By on May 20, 2022 0

RWorries about rising rates are gripping the world, again paralyzing the investment scenario with uncertainty. Volatility could become the name of the game thanks to a multitude of factors ranging from rising inflation in the United States and other parts of the developed world, to fears of a slowdown in China and the resulting pressure. results on supply chain and global growth, and geopolitical issues.

Wall Street had the worst start to 2022 since 1939. And analysts think more crashes are on the way. While concerns about rising rates have prevailed with the Fed raising rates faster this year, bond investing is also in dire straits. Indeed, bond prices share an inverse relationship with bond yields.

As a result, cash is becoming a popular asset with top Wall Street managers. Rick Rieder, chief executive of BlackRock Inc., said the world’s largest asset manager was increasing its cash holdings by more than 50% in many portfolios to a “much, much higher” weighting than it hadn’t been in years past, as quoted on The Wall Street Journal. As central banks work to reduce inflation by raising interest rates around the world, he expects stock prices to remain volatile over the next two to six months.

Why hoarding money makes sense now

Investors sold assets to save cash following heightened uncertainty caused by a stock market crash. The road ahead is a bit hazy. Therefore, we believe that cash and short-term fixed income securities can play a greater role in the stability of a portfolio. This is especially true as the Fed will continue to raise rates this year and short-term bond yields will rise in parallel.

Bank of America expects the Federal Reserve to raise U.S. interest rates to 3% by early next year, from their current level of 0.75% to 1.0%, notes the WSJ article. This would result in a similar rate for cash-like assets such as money market funds.

According to the WSJ article, Bank of America’s April survey of global asset managers showed cash holdings near the highest level since April 2020 – the period representing the aftershock of the sell-off. market massiveness caused by COVID. The article pointed out that State Street Global Advisors also said the company’s portfolios held at least 50% more cash year-to-date.

Below we highlight a few money market ETFs and their performance plus their returns.

Focus on ETFs

JPMorgan UltraShort Income ETF JPST – Returns of 0.69% per annum

The JPMorgan Ultra-Short Income ETF seeks to achieve its investment objective by investing primarily in high quality short-term fixed, floating and floating rate debt securities denominated in US dollars. The fund charges 18 basis points in fees and earns 0.69% per annum.

Columbia Multi-Sector Municipal Income ETF MUST – Returns 1.67% per year

The Beta Advantage Multi-Sector Municipal Bond Index reflects a rules-based, multi-sector strategic beta approach to measuring the performance of the U.S. tax-exempt bond market, which is comprised of bonds issued by or on behalf of governments or local governments whose interest is exempt from federal income tax, with an emphasis on yield, quality, maturity, liquidity and interest rate. The 30-day SEC yield of the 605-stock ETF MUST is 2.76% per year.

First Trust Short Duration Strategic ETF LDSF – Returns 2.48% per annum

The First Trust Low Duration Strategic Focus ETF seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in a portfolio of exchange-traded funds listed in the United States that invest primarily in income-generating securities that provide the Fund with an effective portfolio duration of three years or less. The First Trust Low Duration Opportunities ETF holds 40.61% of the fund, while the iShares 0-5 Year Investment Grade Corporate Bond ETF holds 20%.

iShares IBonds 2022 Term High Yield And Income ETF IBHB – Returns 1.88% per annum

The underlying Bloomberg 2022 Term High Yield and Income Index is composed of high yield corporate bonds and other income-generating bonds denominated in US dollars and maturing in 2022. The fund charges a fee of 35 basis points. base.

iShares iBonds 2023 Term High Yield and Income ETF IBHC-YTM 5.06%

The fund offers exposure to a diversified universe of high yield and BBB rated corporate bonds maturing between January 1, 2023 and December 15, 2023 in a single fund. The weighted average maturity of the fund is 1.07 years, while the effective duration is 1.05 years. The option-adjusted spread as of May 5, 2022 is 315.13 basis points, which means the fund has earned as much additional yield over US Treasuries of similar duration.

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JPMorgan UltraShort Income ETF (JPST): ETF Research Reports

Columbia MultiSector Municipal Income ETF (MUST): ETF Research Reports

First Trust Low Duration Strategic Focus ETF (LDSF): ETF Research Reports

iShares iBonds 2022 Term High Yield and Income ETF (IBHB): ETF Research Reports

iShares iBonds 2023 Term High Yield and Income ETF (IBHC): ETF Research Reports

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Zacks Investment Research

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