Tuesday brought yet another rout in the market as investors reacted to the threat of higher tariffs on Canadian steel and aluminum. Everchanging tariff policies and a seeming willingness to accept recession due to current policy by the current administration spooked markets in recent weeks. Investors looking to hedge for recession risks would do well to consider short duration bonds and the Neuberger Berman Short Duration Income ETF (NBSD ).
In a retaliatory move to Ontario announcing a 25% tax increase on electricity supplied to the U.S., President Trump announced another 25% tariff increase on steel and aluminum from Canada. It brings tariffs of those specific goods to 50% and goes into effect Wednesday, March 12. Ontario’s decision followed on the heels of Trump’s 25% tariffs on Canadian goods.
The tariff volatility in markets followed on the heels of heightened recession worries. Comments over the weekend by President Trump that refused to rule out recession as an outcome to current policy lit the fuse on renewed recession fears, reported WSJ.
Monday marked the worst plummet for the S&P 500 so far this year, with nearly three-quarters of the stocks in the index sitting in correction territory, according to CNBC. 203 of the stocks in the benchmark index closed Monday in bear territory, or down more than 20% from 52-week highs.
Tuesday brought more market losses, with the S&P 500 down 1.22% and the Nasdaq Composite down 0.84% as of early afternoon trading. At the same time, the U.S. dollar weakened against other currencies, except the Canadian dollar.
Hedge for Uncertainty and Market Risks With NBSD
Short duration bonds often prove popular with investors when recession, inflation, or rate risk threatens due to their lower risk profiles. The actively managed Neuberger Berman Short Duration Income ETF (NBSD) seeks to generate reliable income while providing an investment-grade, short-duration profile for portfolios. Short-term bonds often prove appealing for their reliable income potential when interest rate, inflation, or recession risks spike.
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.
See also: ETF of the Week: Neuberger Berman Short Duration Income ETF
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 increase.
The strategy also works to reduce credit risk through its diversified exposures. NBSD currently offers a 30-day SEC yield of 5.39%, as of February 28, 2024. NBSD also offers a distribution rate of 4.81% over the same period. Distribution rate annualizes the most recent distribution and then divides by the most recent NAV. The weighted average duration of the fund was 1.88 years as of December 31, 2024.
NBSD carries an expense ratio of 0.35%.
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