Investors shifting their focus to long-duration bonds may be overlooking a compelling opportunity in ultra-short and short-duration bonds.
In the current economic environment, many investors are naturally drawn to the allure of long-duration bonds. Long-duration bonds are often perceived as a potential source of significant returns. However, this focus may lead investors to unintentionally miss a potentially compelling and strategically advantageous opportunity: ultra-short- and short-duration bonds.
While long-duration instruments have their place in a diversified portfolio, the unique characteristics of their shorter-term counterparts warrant closer examination. This is particularly true in light of prevailing interest rate environments and market dynamics.
Short and intermediate bond funds currently present their most compelling narrative since 2008, characterized by a potential return advantage, relatively low volatility, and some of the highest starting yields observed in 17 years, according to a March 2025 white paper from Fidelity Investments.
Compared to longer-duration bond funds, short and intermediate-duration bond funds have historically provided appealing returns with less volatility over time. Furthermore, short bond ETFs currently offer attractive yields and may outperform longer-duration bonds in the current environment, according to Fidelity.
ETFs Offering Exposure to Short Duration Bonds
Three ETFs to consider in the current environment include the Fidelity Limited Term Bond ETF (FLTB ), the Fidelity Low Duration Bond ETF (FLDB ), and the Fidelity Low Duration Bond Factor ETF (FLDR ).
These three ETFs offer investment-grade, low-duration fixed income exposure. They are well-positioned in the current environment as they do not require investors to take on significant credit or duration risk.
FLTB is a shorter-duration investment-grade bond strategy focusing primarily on U.S. corporate credit. The actively managed ETF typically maintains a dollar-weighted average maturity of two to five years.
FLDB is an active ETF primarily investing in investment-grade debt securities. The ETF maintains a low duration (typically under one year) to minimize interest rate risk.
Finally, FLDR tracks an index of U.S. investment-grade floating-rate notes and Treasuries, aiming to optimize the balance of interest rate and credit risk. The ETF seeks improved returns and risk relative to benchmarks, while maintaining a duration of one year or less – and is nearing the $1 billion mark in AUM.
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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