Investors eagerly anticipate the beginning of interest rate cuts next month as the narrative potentially turns for the better. However, elevated geopolitical risks alongside the U.S. election in November create the potential for heightened short-term volatility in markets. Those investors looking to position defensively while seeking income should consider the KraneShares Sustainable Ultra Short Duration Index ETF (KCSH ).
In the near-term, equity markets continue to prove volatile as earnings season remains underway. While Nvidia beat earnings and revenue, it did so by a smaller margin than previous quarters, resulting in the AI-darling’s stock to fall over 6% in trading Thursday.
Concerns about the sustainability of outstanding performance from AI-centric companies remains a worry for some investors, while others look to stock concentration risk. Nvidia’s decline weighed heavily on broad equity benchmarks, which closed relatively flat, while the Dow Jones Industrial Average notched another record day. It creates an environment of potential uncertainty and volatility.
Looking ahead to the remainder of the year, the U.S. presidential election will likely stir up more short-term volatility for markets. Add in elevated, ongoing geopolitical tensions, and the potential for volatility seems greater still.
KCSH seeks to track the Solactive ISS Sustainable Select 0-1 Year USD Corporate IG Index. The index measures the performance of investment-grade corporate bonds with maturities up to one year.
These bonds offer a historically lower risk of default compared to noninvestment-grade bonds. IG bonds also offer the potential for reliable yields for investors, an attractive quality during periods of pronounced, ongoing market volatility. The bonds are U.S. dollar-denominated, and the strategy seeks to offer similar credit and interest rate risk as ultra-short duration IG bond benchmarks.
Invest for Volatility With KCSH
The strategy also strives to generate yields and a risk premium over that of Treasuries as well as money markets. KCSH goes one step further in screening for those issuers that align with the Paris Agreement. It includes climate analysis by Institutional Shareholder Services in its security selection screen.
This means companies whose bonds are included must work to curtail global emissions to 1.5 ° Celsius by 2050. Issuers must demonstrate self-decarbonization of 7% or greater each year before their inclusion in the portfolio. The strategy also excludes issuers whose revenues are derived from fossil fuels and other sources.
See also: Diversify Your Income Portfolio Without Sacrificing Yields
The fund’s focus on sustainability creates a diversified portfolio of issuer sector weights compared to peers within the space. This makes it a complement to other short-duration funds within a portfolio and a strong addition to an income sleeve. Ultra-short-duration funds also offer diversification to their longer-duration peers.
KCSH has an operating expense of 0.20% with fee waivers that end August 1, 2025.
For more news, information, and analysis, visit the Climate Insights Channel.
