This Cheap Short-Term Bond Fund Can Reduce Portfolio Risk
Broad exposure to the short-term U.S. investment-grade corporate-bond market at a low cost.
Bonds can reduce risk in an investment portfolio. A fund such as SPDR Portfolio Short Term Corporate Bond ETF (SPSB) focuses on corporate bonds but reins in its credit and interest-rate risk by focusing on investment-grade issues with fewer than three years until maturity. This is a solid option for low-cost, efficient exposure to U.S. short-term investment-grade corporate bonds. Its conservative strategy keeps credit and interest-rate risk low and has a durable cost advantage over Morningstar Category peers. However, the exchange-traded fund has a subpar index-tracking record compared with peers. And its portfolio tilts heavily toward the financials sector, which can disproportionately impact performance. These considerations limit its Morningstar Analyst Rating to Bronze.
Nearly 45% of the portfolio is invested in the financials sector, which is a source of risk. In 2011, this sector represented less than a fourth of the portfolio. The growth of this sector was mostly driven by large U.S. banks. Since 2010, they have issued a record amount of debt to take advantage of low rates and meet strict postcrisis capital requirements. At the end of 2016, the total outstanding debt issued by the financial-services sector stood at $1.6 trillion. Consequently, market-cap-weighting steered the fund toward A and BBB rated financial institution bonds.
Adam McCullough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.