Investors looking to put cash to work in short-duration bonds, hedge for duration risk, or diversify their income portfolios would do well to consider the recently launched KraneShares Sustainable Ultra Short Duration Index ETF (KCSH ). The fund offers low correlations to fixed income portfolios and a 30-day SEC yield of 4.42% as of December 13, 2024.
Ultra-short duration bonds grew in popularity in the last two years amidst ongoing market volatility and interest rate and inflation uncertainty. These bonds appeal for their low duration risk and low correlations to longer-duration peers.
KCSH Compounds Income Portfolio Diversification Potential
The fund further extrapolates on the low correlations by offering layers of diversification through its strategy. The fund 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.
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. 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.
KCSH’s strategy 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 that derive revenues from fossil fuels and other sources.
Through this additional screen, KCSH offers a diversified portfolio within the ultra-short duration bond space. The fund makes a notable complement to existing ultra-short exposures as well as a general diversifier for fixed income portfolios. KCSH carries an expense ratio of 0.20% with fee waivers that expire August 1, 2025.
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