The impending U.S. presidential election, ongoing geopolitical risks, and even China’s recent stimulus create layers of complexity around inflation, rates, and the economy. Investors wishing to avoid taking on more duration and risk for now would do well to consider the Neuberger Berman Short Duration Income ETF (NBSD ).
Although the Federal Reserve kicked off rate cuts with an aggressive 0.50% reduction, the way forward remains clouded. Market predictions rarely proved correct in the inexorable climb of interest rates in the last two years. Should the rate-cutting cycle turn out to be as difficult to predict, volatility and risk will likely persist.
Should current economic resilience diminish, rates could decline more rapidly. However, ongoing geopolitical strife in the Middle East could impact oil prices, creating further inflationary pressures. Meanwhile, China’s recent economic stimulus policies likely create “a bugger against global deflation risk,” according to Neuberger Berman in a recent Q4 fixed income outlook.
“All this points to our relative caution on duration, even as the longer-term trend for rates is downward,” the firm wrote. “Indeed, longer U.S. Treasuries may stagnate or face upward pressure as debt rises as a percentage of GDP and takes up an ever-greater portion of federal spending.”
Boost Your Short-Duration Exposure With NBSD
Investors wanting to move out of cash but stay positioned on the front end of the yield curve should consider NBSD. The actively managed fund seeks to generate reliable income while providing an investment-grade, short-duration profile for portfolios.
The fund currently offers a 30-day SEC yield of 5.68% and a distribution rate of 5.31% as of Sept. 30, 2024. Distribution rate annualizes the most recent distribution and then divides by the most recent NAV. Over the same period, the average duration of the fund was 1.89 years.
The fund invests across a variety of sectors and bond types, including fixed- and floating-rate investment-grade bonds, both foreign and domestic. These can include asset- and mortgage-backed securities, collateralized debt obligations (including CLOs), and credit risk transfer securities.
The management team considers both qualitative and quantitative factors when selecting securities. They search for underpriced bonds, both on a sector level as well as within peer groups. While 80% of the fund is comprised of investment-grade bonds, up to 20% may be below investment-grade. When investing in these junk bonds, the fund managers seek issuers in relatively strong financial health and whose credit scores may be increased.
The strategy also works to reduce credit risk through its diversified exposures.
NBSD carries an expense ratio of 0.35%.
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