A Short-Term Income Portfolio For All Investors Of All Ages

Includes: JPST, MINT
by: Josh Ortner

Short-term income bond funds offer reliable dividend income for all types of income investors.

The PIMCO Enhanced Short Maturity Active ETF (MINT) and JP Morgan Ultra-Short Income ETF (JPST) offer competitive dividend yields.

With the average duration per note of six months, these funds offer investors opportunity against short-term higher rising rates.

As the yield curve becomes more inverted, opportunity is being created for investors who are looking for competitive short-term income. Just this week, I created a portfolio for an investor comprised of just a couple ETFs. The primary objective and goal for this client was to earn a competitive short-term interest, without committing his capital to a lockup period. Some financial institutions offer traditional banking products to savers, but with certain restrictions or redemption clauses to access your capital. I urge any saver or investor to read the fine print of any annuity or savings product before purchasing. However, an alternative to that is owning a portfolio of short-term bond exchange traded funds, which can create the perfect balance of interest income and full liquidity.

The PIMCO Enhanced Short Maturity Active ETF

The first fund I recommended to this particular client was the PIMCO Enhanced Short Maturity ETF (MINT). The PIMCO ETF is yielding roughly 2.71% in interest, which is also paid monthly to investors. In a previous article published here on Seeking Alpha, I discussed in detail the benefits of owning this ETF. Lets recap the six main benefits of MINT, that are also listed on the PIMCO's website:

1. Increased return potential

2. Capital preservation focus

3. Protection against rising rates

4. Liquidity for non-immediate needs

5. Complements to fixed income allocations

6. Low volatility relative to other asset classes

I'm a believer that investors need visuals to see trends and patterns in investments. Lets take a look below at a total return graph since inception of MINT:

Chart Data by YCharts

As you can see from the above price graph, MINT has done very well long-term for investors who are looking for lower volatile income solutions.

The JP Morgan Ultra-Short Income ETF

Another short-term income fund that I currently use in my income portfolio is the JP Morgan Ultra-Short Income Fund (JPST). The fund currently is yielding investors 2.73%, paid monthly. With 678 current holdings, the fund is diversified across mainly corporate notes under six-months in duration. Here is a table from the JP Morgan website that illustrates the allocation specifically:

Asset Backed Securities 12.9%
Cash/Cash-Equivalent 10.7%
Corporate (Investment Grade) 74.5%
Mortgage (Non-Call) 0.4%
Treasuries/Futures 1.4%

(Source: JP Morgan)

When looking at where the fund has assets allocated, one must take a look at the credit quality of the securities to determine the safety of principal.

US Government 1.4%
AAA 11.9%
A-1+ 1.3%
A-1 3.9%
AA 10.4%
A 42.3%
BBB 23.4%
A-2 4.9%
A-3 0.5%

(Source: JP Morgan)

The average credit quality of the portfolio is A and up, which is investment grade. Next, I want to take a look at a total price return price graph of JPST as well. The YCharts return graphs do a great job showing off the lower volatility in prices which JPST offers below:

Chart Data by YCharts

As you can see from the price graph, JPST is a perfect fund for linear price appreciation since its inception. You just don't come across these type of lower volatile and steady income type of funds.

Monthly Returns For JPST & MINT

When I look at purchasing an ETF, I personally like to take a look at the monthly returns. It gives you a great insight into what type of price volatility you can expect from the financial instrument when owning it. If you see monthly double-digit drawdowns, you might want to do more due diligence. Lets take a look quick below at the monthly returns since 2018:

Year Month JPST MINT
2018 1 0.18% 0.15%
2018 2 0.05% 0.08%
2018 3 0.13% 0.06%
2018 4 0.23% 0.22%
2018 5 0.28% 0.21%
2018 6 0.11% 0.10%
2018 7 0.28% 0.22%
2018 8 0.25% 0.26%
2018 9 0.15% 0.20%
2018 10 0.20% 0.16%
2018 11 0.15% 0.05%
2018 12 0.20% -0.00%
2019 1 0.42% 0.45%
2019 2 0.23% 0.32%
2019 3 0.39% 0.33%
2019 4 0.29% 0.33%

(Source: PortfolioVisualizer.com)

You can see there has not been one month of a drawdown in any of these two securities. This is also considering the rate rise we had in 2018 when treasury yields were rising on the long end of the curve. Pretty impressive if you ask me.

Risk Metrics

Now that we have determined the yields, price history, credit qualities, and monthly returns, we can put the funds together and take a look at the risk metrics.

Arithmetic Mean (monthly) 0.21%
Arithmetic Mean (annualized) 2.55%
Geometric Mean (monthly) 0.21%
Geometric Mean (annualized) 2.55%
Volatility (monthly) 0.10%
Volatility (annualized) 0.35%
Downside Deviation (monthly) 0.00%
Max. Drawdown 0.00%
US Market Correlation 0.62
Beta(*) 0.01
Alpha (annualized) 2.39%
R2 38.21%
Sharpe Ratio 1.99
Sortino Ratio 5.83
Treynor Ratio (%) 42.99
Active Return -6.54%
Tracking Error 15.67%
Information Ratio -0.42
Skewness 0.55
Excess Kurtosis -0.15
Historical Value-at-Risk (5%) 0.00%
Analytical Value-at-Risk (5%) 0.05%
Conditional Value-at-Risk (5%) 0.00%
Upside Capture Ratio (%) 7.34
Downside Capture Ratio (%) -2.20
Safe Withdrawal Rate 100.00%
Perpetual Withdrawal Rate 0.00%
Positive Periods 16 out of 16 (100.00%)

(Source: PortfolioVisualizer.com)

When running risk metrics of any fund, I always like to take a look at drawdown figures, and volatility measurements. The max drawdown of the portfolio is 0. You are reading this right. The two funds have no drawdowns to report since 2018, even with interest rates rising in the beginning of the year. While the Barclays Aggregate Bond Index (AGG) lost -3% in the beginning of 2018, the short-term income funds were positive. Currently, the annualized volatility of these funds are averaging just .35%.


If you are an investor looking for lower volatile, monthly dividend income returns, this portfolio might be for you. I am a firm believer in having reliable steady income at any age of investing, which this portfolio does. If you are retired, this portfolio could be a great supplement or replacement to any complicated financial instrument that locks up your capital for any period of time. Having liquidity, and monthly dividend income streams is extremely important to any aged investor, let alone those who are currently retired. At this point in the market cycle, this type of short-term income portfolio could pay you to be patient for a more severe market correction. There is nothing wrong with earning 2.75% on your money, while focusing on capital preservation. The short-term income portfolio described above is a solution for any aged income investor.

Disclosure: I am/we are long JPST, MINT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Ortner Capital consults clients who own the mentioned securities. Mr. Josh Ortner, CTFA, also owns the securities mentioned in the article. Please consult a certified professional before making any investment decisions.