Kiplinger's on Short-Term Bond Funds
Kiplinger's "Investing for Income" column features a piece entitled, "Consider Short-Term Bond Funds," which tells us, "Savers craving substantial bank and money market interest rates courtesy of the Federal Reserve are still waiting. You might see 0.75% for six months by the second half of 2022, which I agree beats prolonged zero yields. But America's banks have more deposits than they can lend and thus need not scurry to augment their savings rates in concert with Fed rate actions.... Do not despair. The picture is brighter for fans of short-term bond mutual funds and exchange-traded funds (ETFs). Instead of being stuck with Treasury bills and puny bank rates, you can join the world of variable-rate corporate and real estate debt, taxable municipal bonds, packages of car loans and credit card bills, revolving equity credit lines, and the occasional soon-to-mature junk bond. The durations and maturities are only two or three years, but unlike savers, lenders here have pricing power. That suggests these funds' monthly dividends will rise, pushing yields beyond the current 1% to 1.5% and trending toward 2%-plus." The article tells us, "My favorite, FPA New Income Fund (FPNIX), is closed to most new accounts. But there are fine facsimiles, exemplified by Janus Henderson Short Duration Flexible Bond Fund (JASBX, expense ratio: 0.64%, yield: 0.82%), Thornburg Limited Term Income Fund (THIFX, 0.77%, 1.07%), T. Rowe Price Short Duration Income Fund (TSDLX, 0.40%, 1.90%) and USAA Short-Term Bond Fund (USSBX, 0.54%, 1.81%).... Any, or all, of these funds are positioned better for the year ahead than a plain-vanilla money market account or Treasury-focused ultra-short fund." Kiplinger's adds, "Ignore how these and similar funds shed some value in the opening weeks of this year. They own the kind of stuff that benefits from a healthy economy and can withstand Fed rate hikes.... Naysayers will note that in March 2020 many funds like these lost 5% of principal, negating three years of yield. But as long as consumers are in good shape to pay their debts in full and on time, and well-known businesses are solvent, the risk of loss from defaults or downgrades is nearly nil. And interest-rate gyrations allow the fund managers to take advantage of trading opportunities." (Note: Please join us for Crane Data's upcoming Bond Fund Symposium, March 28-29 in Newport Beach, Calif!)
