Quick Take: Thoughts On JPMorgan’s New Ultra-Short Income ETF

JPMorgan launched the JPMorgan Ultra-Short Income ETF (JPST) this past week, the newest in its lineup of around a dozen exchange-traded products. The fund looks to fill the gap between money market funds and short-term bonds by targeting fixed income securities with a duration of about three months to one year.

The one thing about this fund that I like in the current economic environment is its focus on corporate instead of government issues. A one-year Treasury bill will net you around a 1% yield. Look at corporates around the same duration and you can probably double the yield with only modestly additional risk.

Since my days of working at a big mutual fund company, I've always appreciated ultra short-term bond funds for where they fall in the risk/return spectrum. The Vanguard Prime Money Market Fund (VMRXX), generally one of the better yielding money funds, has a 30-day yield of around 1%. The Vanguard Short-Term Corporate Bond ETF (VCSH) has a yield of 2.2%. While we won't know that yield of Ultra-Short Income for a little while, I suspect it'll come in around the 1.3-1.5% area.

To give an idea of the risk involved, let's use the Wells Fargo Ultra Short-Term Income Fund (SADAX) as a proxy. Since the beginning of 2010, the fund's share has been as low as $8.40 and as high as $8.58. That's a total range of around 2% over an 8-year time period. How much extra return have shareholders experienced in exchange for the extra risk? Prime Money Market had an average annual return of 0.2% while the Wells Fargo fund had a 1.2% average annual return. That's an extra 1% a year for only a little extra risk.

The fund's expense ratio looks favorable too. At just 0.18%, it's one of the lower cost offerings in the ultra short-term bond space (although its gross expense ratio would be 0.49% if the current fee waiver weren't in place).

I wouldn't necessarily rush out to buy this fund just in case you're looking for a yield boost. It's probably worth waiting a month or so into a yield is published so you know exactly what you're buying into. But, overall, I like the ultra short-term bond space in general and think this fund is a nice addition to the marketplace.

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