Being Short Has Its ETF Benefits

Ultra-short bonds are defined as fixed income instruments with less than one year of maturity. These bonds incur extremely low interest rate sensitivity. They are sought after during times of market volatility, but can take on slightly more risk than money market funds. 

The category of ultra-short bond ETFs gathered $15.5 billion in assets thus far in 2025, based on FactSet classifications. This was higher than the ETF flows to short-term ($10.6 billion), intermediate-term ($10.7 billion) or long-term ($3.6 billion) bond ETFs. Only broad maturities ETFs ($23.4 billion) that invest across the spectrum were more popular than ultra-short bond ETFs. In February, ultra-short bond ETFs pulled in $9.5 billion alone. 

This was a surprise. As my colleague Kirsten Chang pointed out, many advisors told us they planned to leave their interest rate playbook the same in the first half of 2025.  During a VettaFi fixed income symposium in February, 52% of respondents to VettaFi’s question said they planned to leave their duration unchanged. Meanwhile, only 8% planned to shorten it. Let’s take a closer look at where the ETF money has flowed in the ultra-short category.

There are two types of ultra-short bond ETFs available. One takes a passive approach focused on Treasury bonds. The other type is actively managed; these ETFs own more than the safest bonds.

The iShares 0-3 Month Treasury Bond ETF (SGOV A+) is an example of a passive ultra-short bond ETF. SGOV has $36 billion in assets and pulled in $6 billion in the first two months of 2025. The ETF has a duration of just 0.1 year. That means the bonds inside have nearly no interest rate risk. Yet, SGOV has a 30-day SEC yield of 4.2%. The iShares ETF launched in May 2020 and has a 0.09% expense ratio.

The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL A-) is another passive bond ETF. BIL launched in 2007 and currently has more money than SGOV, with $38 billion in assets. The SPDR ETF added $2.0 billion in assets in the first two months of 2025. BIL’s average duration is modestly higher, at 0.15 years, and its 30-day SEC yield is slightly lower, at 4.1%. This is in part due to its higher 0.14% expense ratio.

Expense-ratio-conscious bond ETF investors should note that Vanguard recently launched its own ultra-short bond ETF. In February, the Vanguard 0-3 Month Treasury Bill ETF (VBIL ) began trading. VBIL has a 0.07% expense ratio, making it cheaper than BIL and SGOV. However, it should be noted that newer fixed income ETFs tend to have less liquidity.

BIL, SGOV, and VBIL have very similar portfolios, but actively managed ultra-short bond ETFs can be different. Let’s look at two of this year’s popular active ETFs.

With $31 billion in assets, JPMorgan Ultra-Short Income ETF (JPST A) is the industry’s largest active fixed income offering. JPST added $2.6 billion in the first two months of year. The ETF has an average duration of 0.8 years and a 30-day SEC yield of 4.5%. Recently, JPST had 59% of assets in investment-grade corporate bonds with asset-backed securities (14%) and commercial paper (11%) much of the remainder.

Meanwhile, the PGIM Ultra Short Bond ETF (PULS ) has $10 billion in assets, and pulled in $1.1 billion thus far in 2025. PULS recently had a 4.7% 30-day SEC yield and a duration of 0.2 years. Relative to JPST, PULS had more exposure to asset-backed securities (21%). Fixed-rate corporate bonds (34%) and floating rate bonds (15%) provided diversification.

We mentioned Vanguard earlier as having expanded its fixed income lineup with a passive product. However, the supply of active ETFs has also swelled. Firms such as MFS, Nuveen, and Thornburg have launched active fixed income ETFs in recent months. Asset managers are bringing their fixed income expertise to meet investors where they are.

Originally published on Advisor Perspectives.

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