The Fed began 2025 with a pause on rate cuts while appearing more leery on the path of inflation. For those advisors and investors concerned about the path of inflation and rates, the Neuberger Berman Short Duration Income ETF (NBSD ) is worth consideration.
The decision to keep rates unchanged follows three consecutive rate cuts in the latter half of 2024. The Federal Reserve noted solidity in the labor market as a positive for the economy. However, in a post-meeting speech, Fed Chair Powell underscored that the regulatory body would need proof of “real progress on inflation” before cutting rates more, reported WSJ.
“We do not need to be in a hurry to adjust our policy stance,” Powell said, particularly with current rates “significantly less restrictive.”
Some of the inflation concerns lie rooted in potential impacts of new policy enacted by the new administration. Possible trade wars, impact to supply chains from tariffs, and more create challenges looking ahead.
“In our view, it seems likely that the policy environment will be eventful in the coming year and beyond,” Neuberger Berman explained in a recent note on fixed income policy-driven volatility. It’s an environment “potentially generating price volatility, but also opening up opportunities for those with the ability and desire to capitalize through the timely use of capital.”
Invest for Bond Volatility and Fed Rate Uncertainty With NBSD
In an environment of expected bond volatility, NBSD is worth consideration. 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 5.63%, as of December 31, 2024. NBSD also offers a distribution rate of 5.07%, as of December 3, 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 1.88 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 increase.
The strategy also works to reduce credit risk through its diversified exposures.
NBSD carries an expense ratio of 0.35%.
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