We highlight three short-term bond ETFs with the best one-year performance through December 31, 2021. Learn more about the ETFs' returns, expenses, holdings, and quant ratings.
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What Are Short Term Bond ETFs & How Do They Work
A short-term bond ETF is an exchange-traded fund that invests in short-term bonds, which are fixed income securities with durations that generally range between one and five years. These bond ETFs may be actively-managed or they may seek to passively track the performance of a short-term bond index, such as the Bloomberg US 1-5 Year Corporate Index.
Other than maturity or duration, such as short-term, intermediate-term, and long-term, the types of bond ETFs are as varied as different types of bonds, including:
- Municipal bonds
- U.S. Treasury bonds
- Corporate bonds
- Agency bonds
- Zero-coupon bonds
- Convertible bonds
Bond ETFs may also be further classified by a specific fixed-income objective, such as high yield or inflation protection.
Investors may hold a bond ETF for a number of reasons, such as interest income, or to diversify an investment portfolio that may include other investment assets, such as stocks, mutual funds, or other ETFs. Investors may prefer short-term bond ETFs when interest rates are expected to rise because bond prices have an inverse relationship with interest rates, and bonds with shorter durations are less sensitive to rate changes.
Important: A bond's duration is often confused with its maturity. Duration is a measure of a bond's price sensitivity to interest rates, whereas a bond's maturity is a measure of years until a bond matures, or when its principal is due. While both measures are related, in that a bond's sensitivity to interest rates is correlated to its maturity, the measures are not identical. A short-term bond ETF's duration is the weighted average duration of individual bonds held in the portfolio.
Evaluating a Short-Term Bond ETF
Investors can evaluate short-term bond ETFs with an ETF screener. To use the Seeking Alpha screener, investors can select the "Taxable Bond" asset class, then select "Short-Term Bond" for the sub-class.
The criteria used for this list are:
- Performance: 1-year return is the primary selection criteria for evaluating performance on our list of short-term bond ETFs. However, investors may review longer periods, such as 3-, 5-, and 10-year returns before selecting an ETF for their portfolio.
- Expenses: When ETFs track the same index or commodity, the one with the lowest expense ratio will often outperform those with higher expenses. Thus, a low expense ratio can be important selection criteria for ETFs.
- Objective: To make the list below, only ETFs that primarily hold bonds with durations of less than five years were considered. The ETFs may be actively-managed or passively-managed. Alternative objectives and strategies, such as ultra-short-term bonds, ETNs, inverse ETFs and leveraged ETFs were ignored for this list.
- Portfolio holdings: Short-term bond ETFs typically hold bonds with durations less than five years. However, these ETFs may hold bonds in a range of bond sub-classes, such as government bonds, corporate bonds, or bonds that vary in credit quality.
- Quant Ratings and Factor Grades: Seeking Alpha's Quant Ratings and Factor Grades can be used for evaluating stocks or ETFs. In this article, we provide Factor Grades, which rate ETFs by five "factors" - Momentum, Expenses, Dividends, Risk, and Asset Flows. To do this, we compare the relevant metrics for the factor in question for the ETF to the same metrics for the other ETFs in its asset class. The factor is then assigned a grade, from A+ to F.
3 Best Short-Term Bond ETFs by Market Performance
| ETF | 1-Year Performance |
| VictoryShares USAA Core Short-Term Bond ETF | 0.90% |
| Western Asset Short Duration Income ETF | 0.74% |
| Hartford Short Duration ETF | 0.59% |
1. VictoryShares USAA Core Short-Term Bond ETF
VictoryShares USAA Core Short-Term Bond ETF (USTB) is an exchange-traded fund that holds a diversified blend of short-term bonds, most of which are corporate bonds and US Treasury bonds. The average duration of the holdings is 1.75 years and the average credit quality is "investment grade," which means a rating of 'BBB' (Standard & Poor's) or better.
- As of date: December 31, 2021
- 1-year performance: 0.90%
- Expense Ratio: 0.35%, or $35 annually for every $10,000 invested
- 30-Day SEC Yield: 1.40
- Average Daily Volume: 106,482
VictoryShares USAA Core Short-Term Bond ETF Performance
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
| VictoryShares USAA Core Short-Term Bond ETF | 0.90% | 3.63% | NA | NA |
| Bloomberg 1-3 Year Credit Index | -0.17% | 2.82% | 2.35% | NA |
| Bloomberg US Aggregate Bond Index | -1.54% | 4.79% | 3.57% | 2.90% |
VictoryShares USAA Core Short-Term Bond ETF significantly outperformed the Bloomberg 1-3 Year Credit Index for the trailing 1-year return, as well as the US Aggregate Bond Index, as of December 31, 2021.
Its outperformance of the 1-3 Yr Credit index can be primarily attributed to the fact that this ETF is actively-managed, which means that the fund manager can invest in securities that are not in the index. The outperformance of the Aggregate Bond index over the past year is partly attributed to the ETF's average shorter duration in a rising rate environment.
Here is where a $10,000 investment in USTB, made 1 year and 3 years ago, would be as of December 31, 2021:
- 1 year ago: $10,090
- 3 years ago: $11,129
Structure, Objective, and Holdings
- Inception Date: 10/24/2017
- Issuer: VictoryCapital
- Ticker: USTB
- Primary exchange: NYSE Arca
- Structure: Open-End Fund
- Objective: Seeks high current income consistent with preservation of principal.
- Holdings: Invests primarily in corporate bonds and U.S. Treasury bonds. The total number of holdings for USTB is 363.
VictoryShares USAA Core Short-Term Bond ETF Seeking Alpha Quant Ratings
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| A- | C- | D | A | A |
2. Western Asset Short Duration Income ETF
Western Asset Short Duration Income ETF (WINC) is an actively-managed, low duration (0-3 years) fixed income strategy that seeks current income via a diversified portfolio with an emphasis on lower interest rate sensitivity. The average duration of the holdings is 2.79 years and the fund aims to maintain at least 80% of its portfolio in investment-grade bonds.
- As of date: December 31, 2021
- 1-year performance: 0.74%
- Expense Ratio: 0.29%, or $29 annually for every $10,000 invested
- 30-Day SEC Yield: 1.73
- Average Daily Volume: 12,412
Western Asset Short Duration Income ETF Performance
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
| Western Asset Short Duration Income ETF | 0.74% | NA | NA | NA |
| Bloomberg 1-3 Year Corporate Index | -0.47% | 3.92% | 3.05% | 2.91% |
| Bloomberg US Aggregate Bond Index | -1.54% | 4.79% | 3.57% | 2.90% |
Western Asset Short Duration Income ETF significantly outperformed the Bloomberg 1-3 Year Credit Index for the trailing 1-year return, as well as the US Aggregate Bond Index, as of December 31, 2021.
Its outperformance of the 1-3 Yr Credit index can be primarily attributed to the fact that this ETF is actively-managed, which means that the fund manager can invest in securities that are not in the index.
A $10,000 investment in WINC, 1 year ago, would be worth $10,074, as of December 31, 2021.
WINC Structure, Objective, and Holdings
- Inception Date: 02/07/2019
- Issuer: Legg Mason Partners
- Ticker: WINC
- Primary Exchange: Nasdaq
- Structure: Grantor Trust
- Objective: Seeks current income via a diversified portfolio with an emphasis on lower interest-rate sensitivity, higher credit quality and active credit selection.
- Holdings: Invests primarily in investment-grade corporate bonds. The total number of holdings for HSRT is 272.
WINC Seeking Alpha Quant Ratings
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| A | C | D+ | B- | A+ |
3. Hartford Short Duration ETF
Hartford Short Duration ETF (HSRT) is an exchange-traded fund that holds a diversified blend of short-term bonds, most of which are investment-grade corporate bonds, bank loans, and mortgage-backed securities. The average duration of the holdings is 1.77 years.
- As of date: December 31, 2021
- 1-year performance: 0.59%
- Expense Ratio: 0.29%, or $29 annually for every $10,000 invested
- 30-Day SEC Yield: 1.67
- Average Daily Volume: 83,930
Hartford Short Duration ETF Performance
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
| Hartford Short Duration ETF | 0.59% | 3.74% | NA | NA |
| Bloomberg 1-3 Year Government Credit Index | -0.47% | 2.28% | 1.85% | NA |
| Bloomberg US Aggregate Bond Index | -1.54% | 4.79% | 3.57% | 2.90% |
Hartford Short Duration ETF significantly outperformed the Bloomberg 1-3 Year Credit Index for the trailing 1-year return, as well as the US Aggregate Bond Index, as of December 31, 2021.
Its outperformance of the 1-3 Yr Credit index can be primarily attributed to the fact that this ETF is actively-managed, which means that the fund manager can invest in securities that are not in the index. The outperformance of the Aggregate Bond index over the past year is partly attributed to the ETF's average shorter duration in a rising rate environment.
Here is where a $10,000 investment in USTB, made 1 year and 3 years ago, would be as of December 31, 2021:
- 1 year ago: $10,059
- 3 years ago: $11,164
HSRT Structure, Objective, and Holdings
- Inception Date: 05/30/2018
- Issuer: Hartford Funds Management Company, LLC
- Ticker: HSRT
- Primary Exchange: CBOE
- Structure: Open-End Fund
- Objective: Seeks to provide current income and long-term total return.
- Holdings: Invests primarily in investment-grade corporate bonds, bank loans, and mortgage-backed securities. The total number of holdings for HSRT is 581.
Hartford Short Duration ETF Seeking Alpha Quant Ratings
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| B+ | C | C+ | A- | C |
Bottom Line
Short-term bond ETFs may track a broad market index or they may provide focused exposure to a certain type or classification of short-term bond. While bond ETFs may offer convenient, diversified access to fixed income securities, they may also carry some of the same risks as individual bonds, such as credit risk, interest rate risk, and market risk.