I think near-term risks for financial markets are very real. It goes beyond geopolitics, though clearly that’s a contributing factor. Complacency is extremely high from what I see in the data, we are entering the seasonally weaker “sell in May, go away” period, and investors are heavily (over)allocated to equities. If you’re nervous about volatility and want a good cash option, the BlackRock Ultra Short-Term Bond ETF (BATS:ICSH) is worth considering until the potential storm I believe is ahead passes.
ICSH is an actively managed exchange-traded fund, or ETF, that seeks to provide investors with a steady stream of income while preserving capital. Unlike a conventional money market fund, ICSH invests in a broad spectrum of short-term U.S. dollar-denominated fixed-rate and variable-rate debt securities and money market instruments. The fund is actively supervised by BlackRock’s Cash Management Team, which has a solid track record of managing short-term investments. The fund’s primary objective is to outperform traditional money market funds by venturing into slightly higher-duration securities with modest credit risk exposure.
A Closer Look at the Fund’s Holdings
The ICSH portfolio includes various fixed-income assets. These include, but are not limited to, certificates of deposit (CDs), commercial paper, sector bonds, and repos. The fund’s exposure to these diverse assets allows it to offer a higher yield than traditional money market funds.
As of the latest data, the fund’s portfolio encompasses 214 individual holdings with a 30-day SEC yield of 5.46%. The portfolio’s effective duration is 0.43 years, implying a relatively low sensitivity to changes in interest rates.
Holdings Breakdown
Top issuers include several well-known and established companies. No position makes up more than 1.74% of the portfolio, making this well-rounded overall.
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Note that these percentages are subject to change as the fund’s portfolio is actively managed.
Sector Allocation and Weightings
ICSH’s investments are spread across various sectors. I will say that a 15% allocation to Certificates of Deposit is unique and makes this even more appealing as a liquid cash alternative with strong yield overall.
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We can also see that these are all fairly high quality, with A rated having a near 50% allocation to the fund.
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Comparing ICSH with Similar ETFs
When comparing ICSH with other similar ETFs, such as the Vanguard Treasury Money Market Fund (VUSXX) and the Fidelity® Money Market Fund (SPRXX), ICSH offers a higher yield. The 30-day SEC yield for ICSH is 5.46%, compared to 5.41% for VUSXX and 5.04% for SPRXX. VUSXX and SPRXX of course, are mutual funds, which givens ICSH more of an edge for real-time liquidity.
Pros and Cons of Investing in ICSH
Before investing in any asset, it’s crucial to understand the potential benefits and risks involved. Let’s examine the pros and cons of investing in ICSH.
Pros
- Higher Yield: ICSH has consistently provided a higher yield than traditional money market funds and short-term treasuries, making it a suitable option for investors seeking regular income.
- Capital Preservation: The fund’s objective is to preserve capital, making it a desirable option for risk-averse investors.
- Liquidity: Being an ETF, ICSH offers high liquidity, allowing investors to buy and sell units easily.
Cons
- Credit Risk: The fund’s portfolio includes various debt securities, each carrying its own level of credit risk. While the risk is minimal due to the investment-grade nature of the securities, it is still present.
- Interest Rate Risk: Although the fund’s duration is short, it is not zero. Therefore, the fund’s value can be impacted by changes in interest rates.
Is the BlackRock Ultra Short-Term Bond ETF a Good Investment?
In conclusion, the BlackRock Ultra Short-Term Bond ETF is a viable investment option for those seeking higher yields than money market funds and short-term treasuries without exposing themselves to significant risk. Its low duration and diversification across various fixed income assets make it a suitable choice for conservative investors.
However, potential investors should be aware of the fund’s exposure to credit risk and interest rate risk. Overall, though, if you’re nervous about markets and looking for a good place to park cash, BlackRock Ultra Short-Term Bond ETF is an ETF worth considering.
