{"id":6565,"date":"2023-05-10T02:20:05","date_gmt":"2023-05-10T06:20:05","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/ulst-short-term-bond-etf-that-fails-to-compete-nysearcaulst\/"},"modified":"2023-05-10T02:20:07","modified_gmt":"2023-05-10T06:20:07","slug":"ulst-short-term-bond-etf-that-fails-to-compete-nysearcaulst","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=6565","title":{"rendered":"ULST: Short Term Bond ETF That Fails To Compete (NYSEARCA:ULST)"},"content":{"rendered":"
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Thesis<\/h2>\n

The SPDR SSgA Ultra Short Term Bond ETF (NYSEARCA:ULST<\/span>) is a fixed income exchange traded fund. As per its literature:<\/p>\n

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The ETF seeks to maximize current income consistent with preservation of capital and daily liquidity through short duration high quality investments<\/span><\/em><\/p>\n<\/blockquote>\n

The fund contains a mix of investment grade corporate bonds and treasuries. The fund manager takes an active approach in terms of portfolio construction, so the mix between corporate paper and treasuries can change over time. Currently the collateral is composed of about 22% treasuries, while the rest is made up of corporate names.<\/p>\n

The fund falls in the short dated bond category, with a very low duration of only 0.6 years. These sorts of instruments have held up quite well in the past year as the Fed has raised rates. They make less of an attractive instruments now with the yield curve at very high levels in the front end. That is the issue we have with this name – its current 30-day SEC yield is only 4.88%, which fails to compete with some Treasuries only short dated funds (such as BIL which we covered <\/span>here or SGOV, covered by us <\/span>here), while at the same time taking some credit risk.<\/span><\/p>\n

2023 has been an interesting year so far – we have seen defaults in the investment grade space, namely financials. ULST has around 20% of its collateral in financials, which makes it susceptible to further failures in the space. The fund is granular enough to sustain any small defaults, but it makes little sense to take that risk when the front end of the risk free government curve gives you the type of yields seen here.<\/p>\n

ULST has been a good parking vehicle as Fed Funds moved higher, but does not compete well in today’s environment when yields have peaked in our opinion. A retail investor is better served by either buying a 1-year CD or investing via funds such as BIL or SGOV here rather than taking any sort of credit risk via ULST. You are not compensated to do so.<\/p>\n

Analytics<\/h3>\n