The Top 5 Short-Term Bond Funds for 2016
Investors seeking capital preservation often focus portfolio allocations on minimal-risk investment options, including cash, money markets. certificates of deposit (CDs) and bonds. Under the bond category, short-term bonds fall on the safer end of the debt securities risk spectrum due to their short duration and subsequent near-cash status. A shorter duration or maturity date leads to less credit risk and less interest rate risk. both of which are beneficial in a rising interest rate market. Investors can earn slightly more in short-term bond investments than they do holding an all-cash position or a CD issued by a bank. However, short-term bonds do not provide impressive yields over time compared to intermediate or long-term bond holdings .
For conservative investors, short-term bonds are attractive because they effectively reduce the amount of volatility experienced within a portfolio. While short-term bonds meet a capital preservation investment objective. diversification is necessary to achieve optimal performance. Mutual funds that invest in short-duration bonds provide this diversification, giving investors the ability to invest in high-quality, short-term bond holdings across various types of issuers, industries and regions.
Vanguard Short Term Investment Grade Fund
Established in 1982, the Vanguard Short Term Investment Grade Fund seeks to provide investors with current income with a focus on maintaining minimal price volatility. Fund managers invest a substantial amount of the fund’s assets in high-quality fixed income securities, with no less than 80% in short- and intermediate-grade debt issues. The fund currently manages $53.02 billion in investor assets, and as of December 2015, has generated a 10-year annualized return of 3.57%.
The fund offers diversification in terms of regional exposure, credit quality and bond issuer type. While the majority of fund assets are invested in United States, the fund also provides exposure to debt securities in Canada at 3.73%, Australia at 2.76%, the United Kingdom at 2.75% and the Netherlands at 2.02%. Debt securities with a rating of A make up the largest weighting within the portfolio at 34.60%, followed by AAA-rated bonds at 27.04%, BBB-rated bonds at 21.19% and AA-rated bonds at 14.36%. The mutual fund currently invests heavily in corporate issues, comprising 57.01% of the investment mix, followed by securitized issues at 20.62% and government bonds at 8.9%.
The fund has an expense ratio of 0.2%, well below the category average. Investors can buy shares without an upfront sales load, and no charge is assessed when shares are redeemed. A minimum initial investment of $3,000 is required.
DFA Short-Term Extended Quality Portfolio
The DFA Short-Term Extended Quality Portfolio was established in March 2009 and seeks to provide investors with maximum total return from the universe of debt securities. Fund managers invest a minimum of 80% of the portfolio in fixed-income securities believed to be investment-grade quality. Up to 25% of the fund’s assets may be invested in U.S. Treasury bonds. bills or notes, or debt obligations of federal agencies and instrumentalities. The mutual fund manages $3.96 billion in investor assets, and as of December 2015, it has generated a five-year annualized return of 1.9%.
Fund managers diversify holdings across various regions, issuers and quality. The majority of the investment mix is focused in the United States at 69.27%, with additional exposure in Australia at 4.49%, Canada at 4.22%, the United Kingdom at 3.39% and France at 3.22%. Corporate issuers make up 81.39% of the portfolio, with government debt securities comprising 8.44%. The largest weighting is found in A-rated bonds at 37.74%, followed by BBB-rated issues at 28.05%, AA-rated bonds at 18.83% and AAA-rated bonds at 15.38%.
The mutual fund has an expense ratio of 0.22%, which falls below the category average, and investors can purchase shares with no upfront or deferred sales charge. No minimum initial investment is required.
Fidelity Short Term Bond Fund
The Fidelity Short Term Bond Fund has an inception date of March 1986, and the fund seeks to obtain a high level of current income for investors. With preservation of capital in mind, fund managers invest at least 80% of the portfolio in investment-grade debt securities or a repurchase agreement of securities. Fund managers focus on providing an investment mix that produces an interest rate similar to the overall rate of the Barclays U.S. 1-3 Year Government/Credit Bond Index. Since inception, the fund has accumulated $5.32 billion assets, and as of December 2015, it has generated a 10-year annualized return of 2.06%.
The investment mix includes domestic and foreign issuers, with 85.14% held in U.S. issuers, 4.28% in the United Kingdom, 1.96% in Japan and 1.54% in Canada. Corporate debt securities make up 41.13% of the portfolio, followed by securitized issues at 29.4% and government issues at 20.33%. The fund focuses on quality bond holdings by investing 48.6% in AAA-rated issues, but it also provides exposure to A-rated bonds at 29.56% and BBB-rated bonds at 14.61%.
The mutual fund has an expense ratio of 0.45%, in line with the majority of short-term bond mutual funds. Investors are not charged an upfront or deferred sales load, and an minimum initial investment of $2,500 is required.
Schwab Short-Term Bond Market Fund
The Schwab Short-Term Bond Market Fund has an inception date of 1991, and fund managers seek to provide investors with high current income. This mutual fund tracks the performance of the Barclays U.S. Government/Credit: 1-5 Years Index by investing a substantial amount of the portfolio assets in debt instruments found on the benchmark. Fund managers focus on investment-grade debt instruments in fixed, variable or floating interest rate categories with various maturities. The mutual fund manages $389.97 million in investor assets, and as of December 2015, has generated a 10-year annualized return of 1.69%.
Fund managers invest the lion’s share of portfolio assets in domestic issuers, providing exposure to debt instruments in Canada at 1.61%, Germany at 1.37% and the United Kingdom at 1.03%. Government issues make up 73.76% of the total portfolio, followed by corporate issues at 25.95%. Because of the mutual fund’s focus on quality, the Schwab Short-Term Bond Market Fund invests 71.63% of assets in bonds with an AAA rating, followed by BBB-rated bonds at 12.72%, A-rated bonds at 11.13% and AA-rated bonds at 3.49%.
The mutual fund has an expense ratio of 0.29%, and investors are not charged an upfront or deferred sales load at the time or purchase or redemption. A minimum initial investment of $100 is required.
Nuveen Short Term Bond Fund
The Nuveen Short Term Bond Fund was established in December 1992, and seeks to provide investors with current income while maintaining principal stability. Fund managers invest at least 80% of the fund’s assets in U.S. government securities. commercial and residential mortgage-backed securities (MBSs), asset-backed securities (ABSs), corporate debt obligations and municipal bonds. Since inception, the fund has accumulated $680.12 million in assets, and as of December 2015, it has generated a 10-year annualized return of 2.9%.
Fund managers diversify holdings in terms of regional exposure, issuer type and bond rating. The majority of the fund’s portfolio is invested in domestic holdings, making up 89.99% of the investment mix. However, exposure to other countries is provided, including the United Kingdom at 2.48%, Canada at 1.7%, France at 1.25% and the Netherlands at 0.92%. Securitized debt holdings comprise 46.83% of the portfolio, followed closely by corporate issues at 43.9%. The Nuveen Short Term Bond Fund provides minimal exposure to government issues and municipal bonds. Bonds with an AAA rating make up 30.91% of the portfolio, followed by BBB-rated bonds at 28.11%, A-rated bonds at 20.70% and AA-rated bonds at 8.83%.
The expense ratio is 0.71%, higher than the category average. Investors are charged an upfront sales load of 2.25% with new share purchases, but they are not assessed a deferred charge when they redeem shares. A minimum initial investment of $3,000 is required.
A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares.
Net Margin is the ratio of net profits to revenues for a company or business segment – typically expressed as a percentage.
A company s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.
The current ratio is a liquidity ratio measuring a company s ability to pay short-term and long-term obligations, also known.
A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment.
An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest.