With 2026 right around the corner, dutiful advisors and investors are already considering portfolio alterations for the new year, including what to do with fixed income assets in their portfolios.
While expectations of a December interest rate cut by the Federal Reserve have recently dwindled, there is some sense that Fed Chair Jerome Powell will be seeking new employment in 2026 and that his predecessor will unleash more accommodative monetary policy. In theory, a torrent of lower rates could diminish the appeal of short duration bonds.
However, there’s more to the story, indicating there’s a solid 2026 case for ETFs such as the actively managed Neuberger Berman Short Duration Income ETF (NBSD ). NBSD, which has returned an impressive 5.48% year-to-date, features a weighted average duration of just 1.88 years, implying low sensitivity to Fed action.
NBSD Offers Compelling Income for Portfolios
Obviously, income is one of the primary reasons advisors and investors embrace bonds and the related ETFs, but the catch is longer duration bonds provide more income. That’s the compensation investors earn for taking on more rate risk.
“The main advantage of short-term bonds is their ability to generate current income with relatively low risk. For this reason, short-term bonds can be a good choice for many investors’ portfolios,” noted Morningstar analyst Amy Arnott.
For its part, the $615 million NBSD checks the income box with aplomb. The ETF has a 30-day SEC yield of 4.90%, which is impressive under any circumstances, but even more so when considering the aforementioned low duration and minimal credit risk found with this ETF. Plus, NBSD still has some leverage to declining rates.
“Like other bonds, short-term bonds perform best during periods of declining interest rates and low or declining inflation. Because of their limited maturities, though, they don’t benefit as much from downward trends in interest rates. As a result, most short-term bond categories had relatively anemic returns over the 10 years through 2021 but held up better than longer-duration categories amid the bond market carnage in 2022,” added Arnott.
Bottom line: an ETF like NBSD can provide investors with low-risk income, potential benefits tied to lower interest rates and portfolio diversification.
“Short-term bonds aren’t the best way to generate long-term wealth, but they serve a critical role in providing both current income and helping reduce risk at the portfolio level. They’re also a relatively safe way to save up for shorter-term goals, especially now that bonds are offering more generous yields,” concluded Arnott.
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