Why iShares Short Treasury Bond ETF Is So Popular

IShares Short Treasury Bond ETF SHV behaves like a substitute for short-term cash. This low-risk, low-reward portfolio of U.S. Treasuries may have trouble keeping up with its peers over the long term, warranting a Morningstar Analyst Rating of Neutral.

This fund tracks the ICE Short U.S. Treasury Securities Index, a collection of U.S. Treasuries with less than one year until maturity. The index weights constituents by market value. It’s an efficient approach that pulls the portfolio toward the mostliquid securities and can help rein in transaction costs.

Treasury securities are backed by the full faith and credit of the U.S. government, so this fund courts minimal credit risk. All of the portfolio’s holdings sport a clean AAA credit rating, while its peers venture into lower rungs of the investment-grade ladder. Interest-rate bets don’t help this fund carve an advantage, either. Its effective duration has been between 0.2 and 0.5 years over the past 36 months, a mark consistently lower than the category average. Such little risk makes it difficult to generate much return, so this fund comes with limited upside potential.

A narrow focus on Treasury securities makes this fund an odd fit in the U.S. ultrashort bond Morningstar Category. Its standard peer allocated only 11% of its portfolio to government securities as of December 2021, leaning instead into corporate (36% of portfolio) and securitized bonds (26%). These corners of the bond market present more risk but more return potential. When markets are relatively healthy, it may be difficult for this conservatively allocated fund to keep pace with its peers.

The fund’s benchmark will start to incorporate transaction costs into its total return calculation in April 2022. This will not affect fund performance, as it already includes such expenses.

Key Proprietary Morningstar Metrics for iShares Short Treasury Bond ETF

Morningstar Analyst Rating: Neutral

Process Pillar: Average

People Pillar: Above Average

Parent Pillar: Above Average

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