The aggressive and continuously changing U.S. tariff policy wreaked havoc on markets last week and set off a larger flight from U.S. assets. As the flight to safety continues, investors would do well to consider KraneShares Sustainable Ultra Short Duration Index ETF (KCSH ) for its diversification potential.
The rout in longer duration bonds may have been an integral driver of the roll-back of country specific tariffs last week. Soaring bond yields (price and yield move inverse in bonds) at a time when equities also plummeted set off alarm bells for many. With the pain of stock and bond correlations in 2022 still relatively fresh for many investors, the flight from longer duration bonds and subsequent falling prices continue to be a cause for concern as equities plummet.
As the tariff narrative continues to unfold, and change, the longer-term inflationary impact for equities is one the Fed will need to weigh against employment when deciding rate cuts. “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Fed Chair Jerome Powell said in a speech at the Economic Club of Chicago, reported CNBC. “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
Tariffs create enhanced uncertainty for inflation and interest rates looking ahead. This in turn leads to added risk in longer duration bonds, and investors have taken note. Morningstar reported that over $2 billion in net flows flooded into ultrashort bonds between April 3 (first trading day after targeted country tariff announcement) and April 7. Ultrashort bonds proved the most attractive category within bonds over that time period as investors looked to the safety of cash alternatives.
Diversify Your Ultrashort Bond Allocations With KCSH
The +KraneShares Sustainable Ultra Short Duration Index ETF+ (KCSH ) seeks to track the Solactive ISS Sustainable Select 0-1 Year USD Corporate IG Index. That index measures the performance of investment-grade corporate bonds with maturities up to one year. Adding the investment-grade component may help appease more risk-averse fixed income investors. Investment-grade bonds generally offer a lower default risk profile than their high yield peers.
As of April 15, KCSH has a 30-day SEC yield of 4.25%. The strategy offers a diversified portfolio compared to many ultra-short bond strategies while retaining the general risk profiles of the category. This includes lower interest rate and credit risk than longer duration bonds.
KCSH makes for a notable complement within an income sleeve because of its diversification potential. Top holdings within the fund include Microsoft, Manufacturers and Traders Trust, and Truist Financial Corp, as of April 15, 2025.
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