A New Way To Short-Term Bond Exposure

Although expectations for more interest rate hikes this year by the Federal Reserve have been adjusted, issuers of exchange traded funds continuing bringing short-term bond funds to market.

Two such funds debuted last week, one of which was the JPMorgan Ultra-Short Income ETF JPST. The JPMorgan Ultra-Short Income ETF is a conservative fixed income strategy that looks to preserve principal and generate income while minimizing volatility.

“The strategy takes a conservative approach and is designed to provide additional income beyond that of money market funds, while mitigating volatility and limiting duration exposure. It invests across sectors, but primarily focuses on corporate and investment grade credit,” said New York-based JPMorgan Asset Management in a statement.

Many short-term bond ETFs emphasize lower duration U.S. government, a strategy that often leads to small yields, reducing income for investors in the process. Actively managed, JPST eschews that strategy to focus on securities with better income-generating potential, such as investment-grade corporate debt.

Generally, JPST will try to maintain a duration of less than one year, but the ETF's management team can go beyond that threshold when market conditions indicate that could be a profitable strategy.

“The ETF will normally focus investments in the banking industry or hold more than 25% of assets in securities issued by companies in the banking industry. The fund, though, may also invest less than 25% of assets in this industry as a temporary defensive measure,” according to ETF Trends.

JPST charges 0.18 percent per year, or $18 on a $10,000 investment.

JPMorgan Asset Management sponsors 13 ETFs with more than $1 billion in combined assets under management. JPST is the third bond fund in the firm's ETF stable.