Federal Reserve Board Chairman Jerome Powell, who has signalled he supports cutting interest rates in the U.S. to address declining economic activity.
As interest rates around the world remain lower for longer than most analysts expected, the hunt for yield has become, well, unyielding.
The success of one exchange-traded fund may shed some light on that. The JPMorgan Ultra-Short Income ETF JPST, +0.04% has become the second-biggest actively managed exchange-traded fund available, with $7.6 billion of assets under management, according to FactSet data, and it’s only about two years old.
In a falling-interest-rate environment, “a strategy that can offer a little yield without taking on risk is appealing,” said Todd Rosenbluth, head of ETF and mutual fund research for CFRA.
JPST mostly invests in investment-grade — that is, higher-quality, lower-risk — corporate bonds and U.S. Treasury notes. Also in its portfolio: asset-backed securities and certificates of deposit. Its goal, according to a summary prospectus, is “current income with a focus on risk management.”
The fund is actively-managed, which means that unlike the vast majority of ETFs it does not track a particular index, but depends on portfolio managers to make choices about the best securities to mostly buy and hold. Despite that, JPST’s expense ratio is only 18 basis points. That’s about half as much as close competitor PIMCO’s Enhanced Short Maturity Active ETF MINT, +0.03%. MINT has been around since 2009 and has about $12 billion under management, according to FactSet data.
Fees matter a lot in risk-averse, fixed-income-oriented funds like these, Rosenbluth pointed out. Over the past year, JPST has returned 3.21%, while MINT has returned 2.90%. (MINT says it aims to provide “maximum current income, consistent with preservation of capital and daily liquidity.”)
JPST’s fee, it’s worth noting, is actually .28%, but as a new fund, it has “waived” a hefty portion of the management fee to attract more inflows, through at least 2022.
“I am pleasantly surprised by how much demand there is for this and other ultra short bond ETFs because there are other ways to generate income in a falling interest rate environment,” Rosenbluth told MarketWatch. Of particular note with JPST, he said, is the “global nature of the portfolio.”
Its third-biggest holding, according to documentation available on its web site, is commercial paper from the Bank of China. Bonds issued by banks in Canada and France also round out the top ten.