ETF Specialist

Providing Shelter From Market Volatility

Phillip Yoo, CAIA

After new Federal Reserve Chairman Jerome Powell's testimony on Feb. 27, both the Dow Jones Industrial Average and S&P 500 fell about 1%, while the 10-year Treasury bond yield jumped to 2.9% from 2.4% just two months ago. Powell's statements reflected his view that the labor market is strong and inflation is moving up to target, which, in turn, signals the Fed's continuation of its tightening policy. While investors shouldn't make dramatic changes based on anticipated rate increases,  iShares Short Treasury Bond ETF (SHV) is a great option for those looking for a cash alternative as shelter from market volatility.

This fund invests in Treasury securities with less than a year remaining until maturity, taking minimal credit and interest-rate risk, which translate to a low yield. Accordingly, pricing is one of the most important factors driving returns for funds in the ultrashort bond Morningstar Category. This fund enjoys a durable cost advantage over most of its category peers, but there are even cheaper alternatives, which limits the strategy to a Morningstar Analyst Rating of Bronze.

Phillip Yoo, CAIA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.