With volatility expectations looming over the first quarter of 2025, advisors and investors would do well to consider diversification opportunities for their portfolios. The KraneShares Sustainable Ultra Short Duration Index ETF (KCSH ) offers low interest rate bond exposure and added diversification within ultra-short exposures.
Equity indexes ended the first trading day of the New Year down while bond yields rose. The incoming presidential administration will likely bring with it a number of policy changes likely to impact equities. On the bond side, the Fed’s expectations for fewer rate cuts this year could
Since the fund’s launch at the end of July, 2024, KCSH has generated reliable returns amidst bond volatility. Between the beginning of August and end of December, KCSH offered returns of 2.5% while the Bloomberg U.S. Aggregate Bond Index fell 0.97%.
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.
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. In the latter half of 2024, this proved the case when comparing KCSH’s returns to that of the Agg. The bonds KCSH invests in are U.S. dollar-denominated, and the strategy seeks to offer similar credit and interest rate risk as ultra-short duration IG bond benchmarks.
While offering valuable diversification within bonds, the fund’s strategy also provides an enhanced level of diversification through its focus on those companies aligned with the Paris Agreement. 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.
The added screen creates a diversified portfolio within ultra-short bonds. KCSH makes a strong complement to existing ultra-short bond exposures and a general diversifier for fixed income portfolios. The fund carries an expense ratio of 0.20% with fee waivers that expire August 1, 2025.
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