For the most part, financial advisors will tell their clients that it’s better to stay invested than to let cash sit idle. One way to consider staying invested is through short-term bond funds — and Fidelity has a trio of ETFs that are worth considering just for this purpose.
One of the keen advantages of short-duration bonds is their rate risk mitigation. With the U.S. Federal Reserve waffling on whether to cut interest rates or not, fixed income investors don’t have the time or desire to implement a Fed watch strategy and adjust their own holdings as necessary.
Furthermore, inflation is proving to be more stubborn than initially anticipated. Should the Fed continue to keep interest rates in check or worse, pivot and raise rates, short-term bonds can act as guardrails against unexpected Fed rate policy shifts as they are less sensitive to rate changes.
Of course, to fixed income investors, maximizing yield is imperative. This is where short-term bond funds could potentially help protecting assets from the elements of market volatility until it’s time to liquidate their position in order to meet cash needs. This is especially the case in funds that stick to investment-grade debt in order to minimize credit risk.
Furthermore, the yields offered typically exceed those of money market savings accounts. These accounts may not keep up with inflation, which can erode the income they provide with paltry yields.
3 Options to Choose From
As mentioned, Fidelity has three funds to choose from when investors are ready to utilize the benefits of short-term bond funds.
- Fidelity Limited Term Bond ETF (FLTB ): with its active management, it provides short-duration bond exposure from a variety of sources, including investment-grade, high yield, and emerging markets debt securities.
- Fidelity Low Duration Bond ETF (FLDB ): provides exposure to investment-grade debt securities (mostly medium and high quality) of various types and repurchase agreements for those securities. This actively managed strategy normally maintains a duration of 1 year or less.
- Fidelity Low Duration Bond Factor ETF (FLDR ): tracks an index (the Fidelity Low Duration Investment Grade Factor Index) that optimizes the balance of interest rate risk and credit risk such that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices.
For more news, information, and analysis, visit the ETF Investing Content Hub.
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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