Earnings season continues as investors absorb new outlooks in the wake of the first Fed interest rate cut. Meanwhile, the impending U.S. presidential election looms large, creating elevated potential for short-term volatility in the final quarter of the year. Investors looking to take a defensive stance within bonds should look to the KraneShares Sustainable Ultra Short Duration Index ETF (KCSH ).
Earnings beats and misses drive ongoing stock volatility. Meanwhile, investors look to updated projections for the fourth quarter and beyond as rates decline. Short-term volatility risks remain elevated with the U.S. presidential election just two weeks away. KCSH offers exposure to two lower-risk bond categories, both investment grade and ultra-short duration, which may prove beneficial during periods of elevated volatility.
Earn Income While Riding out Volatility With KCSH
KCSH seeks to track the Solactive ISS Sustainable Select 0-1 Year USD Corporate IG Index, which measures the performance of investment-grade corporate bonds with maturities up to one year.
Investment-grade bonds offer a historically lower risk of default compared to noninvestment-grade bonds. IG bonds also offer the potential for reliable yields for investors. This is generally 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.
The strategy also strives to generate yields and a risk premium over that of Treasuries as well as money markets. The fund offers a 4.57% 30-day SEC yield, as of Oct. 21, 2024. 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 degrees 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.
This added lens creates a diversified portfolio within the space, making the fund a notable complement to existing ultra-short duration exposures. KCSH has an operating expense of 0.20% with fee waivers that end Aug. 1, 2025.
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