Home etftrends.com How to Use a Short Duration Income ETF in Portfolios

How to Use a Short Duration Income ETF in Portfolios

With uncertainty being a key theme in markets this year, many investors are still sitting on the sidelines in cash.

Despite the continued uncertainty around rate cuts, a short duration ETF like the Natixis Loomis Sayles Short Duration Income ETF (LSST) could potentially help investors capture current opportunities without taking on significant risk.

“There remains a lot of money sitting on the sidelines in cash,” said Todd Rosenbluth, head of research at VettaFi. “We think advisors will be increasingly turning to actively managed short-term bond ETFs ahead of Fed rate cuts to benefit from potential price appreciation.”

LSST provides a dynamic, active approach to sector allocation and security selection. The short duration income ETF seeks current income consistent with preservation of capital to pursue higher yield potential in short duration yield securities.

Why Short Duration Income Looks Compelling

Short duration credit may be an attractive opportunity, as it tends to offer a higher yield than Treasury bonds of similar durations. However, it’s important to remember that short duration credit carries slightly greater credit risk and reduced liquidity compared to Treasuries.

Additionally, short duration exposure complements money market exposure in portfolios. Investors can get a better yield with short duration exposure than is typical of a money market fund, and it introduces diversification into portfolios.

For short duration funds like LSST, the duration is about two years on average, whereas money market funds are less than 270 days by rule, according to Nick Elward, Natixis Investment Managers senior vice president and head of institutional product and ETFs.

See more: “Natixis Leverages Affiliate Expertise in Its ETF Lineup

The fund is managed by a highly experienced portfolio management team supported by the depth and breadth of Loomis Sayles’ credit and securitized research. Notably, the managers behind LSST are running $100 billion globally, primarily for institutional investors, according to Elward.

Charging 35 basis points, LSST is a cost-conscious portfolio building block.

For more news, information, and analysis, visit the Portfolio Construction Channel.

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