Zachary Evens: Bonds play an important role in portfolios. They spin off reliable income and provide ballast when stocks sink. But bonds are not without risk. Some can be whipsawed by interest rate volatility or credit conditions.
While 2022 was an anomaly, it showed that bonds are not risk-free and don’t always provide the ballast they’re supposed to. That year, interest rates shot up and clobbered most intermediate and long-term bond strategies. The broad-based iShares Core US Aggregate Bond ETF, ticker AGG, lost 13% that year, worse than many high-dividend yield ETFs including two of our favorites: Schwab US Dividend Equity ETF, ticker SCHD, and Vanguard High Dividend Yield ETF, ticker VYM. Shorter-term bond ETFs did better that year, with many losing less than 5%.
Investors have been shifting into short-term bond ETFs lately as concerns over new tariffs, government spending, and weak labor market data loom. But not all short-term bond ETFs are created equal. Many translate low risk into low return or yield. Not all do.
These three short-term bond ETFs stand out for maximizing return or yield while controlling interest rate risk. Each earn a coveted Gold Morningstar Medalist Rating.
3 Great Short-Term Bond ETFs
- Pimco Enhanced Short Maturity Active ETF MINT
- Vanguard Short-Term Treasury ETF VGSH
- JPMorgan Income ETF JPIE
The first ETF on the list is from bond giant Pimco. Pimco Enhanced Short Maturity Active ETF, ticker MINT, or “Mint,” takes almost no interest rate risk with an effective duration of less than half a year. Lead manager Jerome Schneider still delivers solid payouts and competitive returns though by scouring the ultrashort market for the best opportunities, informed by Pimco’s secular forecasts.
This ETF’s SEC and 12-month yield both measure well against ultrashort bond category peers. Its yield isn’t generated by particularly risky bonds either. MINT doesn’t own any junk bonds and limits its emerging markets’ stake to just 5%. Some peers may reach further into these riskier buckets to generate a higher yield, but they could suffer when credit spreads widen.
Next up is Vanguard Short-Term Treasury ETF, which trades under the ticker VGSH. It’s the only passive strategy of the three, and it’s also the cheapest, charging investors just 3 basis points annually.
This short-term government bond ETF takes little risk of any kind, but its minuscule fee lets investors keep nearly all of its returns. Duration measures under two years, and credit risk is basically nonexistent since it owns only US Treasuries.
The short-government Morningstar Category is inherently low-risk, but this fund takes it to another level with less interest rate risk and less credit risk than its average peer. Unlike some peers, this ETF doesn’t hold any securitized debt like mortgage-backed securities, which can sometimes yield more than Treasuries. Despite this, the ETF still notches a 12-month and SEC yield higher than the current category norm. Performance has also been good, outpacing its average peer for most long-term trailing periods.
Last but not least is JPMorgan Income ETF, ticker JPIE, which maximizes yield and controls risk. It charges 39 basis points annually.
Compared to the prior two ETFs, this strategy’s managers can explore the widest array of bonds given its benchmark-agnostic mandate. This lands the ETF in the multisector bond category since it holds a sizable stake in below-investment-grade bonds. The team has wide discretion to dial up or down interest rate and credit risk depending on JP Morgan’s macro views or other factors. Currently, interest rate risk is muted.
Inflation concerns brought interest rate risk down since 2023—a prudent move that helped the ETF outpace the category norm by more than half a percentage point since the beginning of 2024. While the portfolio’s complexion can change based on the team’s and firm’s convictions, income and risk should remain consistent. The managers aim to maintain volatility of around 4%-6% per year with predictable payouts. So far, and in this ETF’s short life, it has delivered.