3 ETFs with exposure to short-term bonds popular with Freetrade investors

ETFs like these can be held in a Stocks and Shares ISA so the money can be moved into other investments without impacting the annual allowance.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

New data from Freetrade has shown that exchange-traded funds (ETFs) giving exposure to short-term bonds have been some of the most popular destination for savers’ cash recently.

Potential benefits include an attractive yield and relatively safe return, though any investor ought to be aware that dividends can be cut at any time of course.

Important considerations

According to Freetrade, when considering an investment in one of the below ETFs, “you’re typically buying exposure to debt issued by the US government and maturing in under 12 months.

“The likelihood of the US government defaulting on these debts is generally considered close to nil – for good reason, the rate set by the Fed is typically referred to as the “risk free rate” and sets a hurdle for performance above which investors will demand of any riskier asset (like equities).

“Nevertheless, you should be aware that funds like these can be subject to pressures if there’s a sudden dash for cash (like we saw at the start of the pandemic in March 2020).”

Based on the total value of trades from September 2022 to March 2023, here are three of the most popular ETFs for Freetrade’s investors.

iShares $ Treasury Bond 1-3yr UCITS ETF

“This ETF seeks to track the performance of the ICE U.S. Treasury Short Bond Index, which includes U.S. Treasury bonds with maturities between 1 and 3 years. It is denominated in USD and trades on the London Stock Exchange. Performance in 2022 was 8.05% as short-dated bonds rallied and rates rose. Currently it’s yielding 1.86%.”

Invesco US Treasury Bond 1-3 Year UCITS ETF

“This ETF aims to replicate the performance of the Bloomberg Barclays U.S. Treasury 1-3 Year Term Index, which measures the performance of U.S. Treasury bonds with maturities between 1 and 3 years. It is denominated in USD and also trades on the London Stock Exchange. This ETF returned 7.75% in 2022 and is down modestly 1.47% YTD. It’s yielding 2.85%.”

Lyxor Fed Funds US Dollar Cash UCITS ETF

“The Lyxor Fed Funds US Dollar Cash UCITS ETF – Acc seeks to track the Solactive Fed Funds Effective Rate index, which tracks a daily rolling exposure to the Federal Funds Effective Rate, the benchmark short-term money market interest rate in the US. With the US dollar strengthening in 2022, this fund returned a whopping 13.88% (!) but so far in 2023, it’s down a modest 1.86%.”

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sam Robson has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Looking for value stocks? Here’s 1 I’d buy and 1 I’d avoid!

This Fool delves deeper into two value stocks she’s had her eye on and explains why she’s bullish on one,…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

With the Airtel Africa share price in pennies, is it a bargain?

With the Airtel Africa share price having slumped by a quarter in just one month, this shareholder considers some of…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Are these 2 defensive FTSE 100 stocks shrewd buys after recent updates?

This Fool takes a closer look at these FTSE 100 stocks. She admires their defensive traits -- but does that…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The FTSE 100 closes up after full-year results from leading UK firms – are they buys?

Earnings season brings about a lot of ups and downs for the FTSE 100. Yesterday had some particularly good releases,…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy NVIDIA stock as a British investor?

NVIDIA stock is up two-thirds this year alone. Our writer considers some pros and cons, specifically given that he is…

Read more »

Investing Articles

With £2,000 in excess savings, I’d buy 41 shares in this Warren Buffett dividend stock

Stephen Wright thinks one of the best dividend shares to buy right now might be a Warren Buffett stock that’s…

Read more »

Investing Articles

How many Aviva shares do I need to collect a £100 monthly income?

Aviva shares are well suited for passive income purposes. Our writer works out how many would be needed for a…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

£2k to invest? I’d buy 883 shares of this overlooked dividend giant for a second income

This FTSE 100 dividend stock has had a mixed time since floating in 2019 but it looks like a brilliant…

Read more »