Low-Fee, Short-Term Fixed Income ETFs: Performance And Yield Review

by: Zvi Bar
An exchange-traded fund is an investment fund traded on a stock exchange. ETFs are something like a hybrid between a mutual fund and traditional equity shares. ETFs hold assets such as stocks, commodities, or bonds, and are designed to trade close to net asset value (NAV) over the course of the trading day, much like a common equity would. Conversely, a traditional open-end mutual fund does not trade throughout the day, but instead adjusts its price after the markets close to reflect the NAV change that occurred that day. Other differences exist between most ETFs and mutual funds, including that several ETFs have considerably lower fees.
This is a comparison of several broad market low-fee fixed income ETFs that hold portfolios of short-term paper. I have included some that hold 1-3 year bonds, whether corporate or Treasury, as well as an extremely short-term 1-3 month T-Bill ETF option. These ETFs were selected based upon their above average volumes within their category, and a requirement that their fees be 0.2% or less. I have provided their present yields and expense ratios (fees), as well as their 1-month and 2011-to-date performance rates.
iShares Barclays 1-3 YR Credit Bond (NYSEARCA:CSJ)
  • Yield: 2.08%
  • Fee: 0.2%
  • 1-month: -0.38%
  • 2011-to-date: -0.07%
iShares Barclays Short Treasury Bond (NYSEARCA:SHV)
  • Yield: 0.10%
  • Fee: 0.15%
  • 1-month: 0%
  • 2011-to-date: 0.01%
iShares Barclays 1-3 YR Treasury Bond (NYSEARCA:SHY)
  • Yield: 0.93%
  • Fee: 0.15%
  • 1-month: -0.02%
  • 2011-to-date: 0.82%
SPDR Barclays Capital Short Term Corporate Bond ETF (SCPB)
  • Yield: 1.83%
  • Fee: 0.12%
  • 1-month: -0.10%
  • 2011-to-date: 0.56%
SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA:BIL)
  • Yield: 0%
  • Fee: 0.13%
  • 1-month: -0.02%
  • 2011-to-date: 0%
Vanguard Short Term Bond ETF (NYSEARCA:BSV)
  • Yield: 2.02%
  • Fee: 0.12%
  • 1-month: -0.09%
  • 2011-to-date: 1.41%
Vanguard Short Corporate Bond Index ETF (NASDAQ:VCSH)
  • Yield: 2.32%
  • Fee: 0.15%
  • 1-month: -0.21%
  • 2011-to-date: 1.21%
These low fees can make a large difference, especially on the long-term performance of such investments. For example, over 10 years an expense ratio of 0.5% will cost an investor 3% more than would an expense ratio of 0.2%. Three percent is a significant amount when you consider that most short-term fixed-income investments take well over a year to provide 3% in income.
These short-term bond ETFs have all remained relatively stable over this volatile year, largely due their low-risk characteristics. As the 2011-to-date chart shows, the shortest-term options have essentially not moved in price, while the longer-term funds oscillated between less than 1 percent down and about 2 percent of a gain, with most now near their 2011-to-date highs, largely set in early August. See the chart, below:
(Click chart to expand)
Short-term fixed income is not highly sensitive to interest rate changes. Additionally, short-term paper is not currently providing much income. Some of these broader ETFs, especially those that include corporate paper, have yields around 2%, which is likely above that which investors can find for cash, CDs and the like.
Of course, this stability also means that these ETFs are unlikely to generate substantial returns. Nonetheless, these funds have primarily outperformed broad equity investments within 2011, due to the recent sell-off across global equity markets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.