Mutual funds investing in debt securities are among the most secure investment options, which provide regular income while protecting the capital invested. Funds, which are part of this category, bring a great deal of stability to portfolios with a large proportion of equity, while providing dividends more frequently than individual bonds. U.S. government bond funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.
Meanwhile, a short-term government bond fund is a mutual fund that's limited, by its investment objectives and fund bylaws, to investing primarily in short-term obligations of the federal government or its agencies. Depending on the fund's definition, short term can be up to five years.
Below, we will share with you 5 top rated short-term government bond mutual funds. Each has earned a Zacks Mutual Fund #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
American Funds Short-Term Tax-Exempt Bond A (MUTF:ASTEX) seeks tax exempted current income. ASTEX invests a large portion of its assets in securities that are exempt from regular federal income tax. ASTEX invests not more than 20% of its assets in securities that are subject to federal alternative minimum tax. ASTEX mostly invests in municipal bonds having a rating of AA- or better. ASTEX's combined portfolio has a dollar-weighted average maturity of not more than three years. The American Funds Short-Term Tax-Exempt Bond A fund has a three-year annualized return of 0.7%.
ASTEX has an expense ratio of 0.58% compared to a category average of 0.71%.
AMG Managers Short Duration Government Fund (MUTF:MGSDX) invests the majority of its assets in debt securities issued by the U.S. government or derivatives that have economic traits similar to such securities. MGSDX aims to reduce credit risk by investing in securities of the highest credit quality. The AMG Managers Short Duration Government fund has a three-year annualized return of 0.2%.
As of December 2015, MGSDX held 424 issues, with 4.96% of its total assets invested in Fed Natl Mort Assc 3%.
Lord Abbett Short Duration Income Fund A (MUTF:LALDX) seeks appreciably high level of income and preservation of capital. LALDX invests a minimum of 65% of its assets in investment grade debt securities. These may include corporate debt securities of U.S. issuers and non-U.S. issuers denominated in U.S. dollars, mortgage-backed securities, U.S. government securities and inflation-related investments. The Lord Abbett Short Duration Income A fund has a three-year annualized return of 1.1%.
LALDX has an expense ratio of 0.59% as compared to a category average of 0.80%.
PNC Ultra Short Bond I (MUTF:PNCIX) invests in investment-grade securities including U.S. government securities, corporate bonds, asset-backed securities and mortgage-backed securities. PNCIX has a dollar-weighted average maturity of not more than 18 months, but may vary outside that range from time to time. The PNC Ultra Short Bond I fund has a three-year annualized return of 0.2%.
As of December 2015, PNCIX held 87 issues, with 5.98% of its total assets invested in US Treasury Note 0.75%
SEI Daily Income Trust Short-Duration Government Fund (MUTF:TCSGX) seeks current income. TCSGX generally invests all of its assets in obligations of the US Treasury and obligations that are approved by the US government or by its agencies. These securities include mortgage-backed securities, and repurchase agreements. TCSGX may consider securities of agencies including the Federal National Mortgage Association (Fannie Mae (OTCQB:FNMA)) and the Federal Home Loan Mortgage Corporation that are affiliated by the US government. The SEI Daily Income Trust Short-Duration Government A fund has a three-year annualized return of 0.4%.
TCSGX has an expense ratio of 0.48% as compared to a category average of 0.80%.