Last week’s economic data indicated that the economy is thriving with a robust jobs report and continued wage growth. Following this report, the market is fueled by tighter rate hike fears and expects that the Fed could lift its target interest rate above the projected 5.1% peak.
On account of moderating inflation, the central bank hiked rates by 0.25 percentage points. However, signaling further rate hikes, Fed Chair Jerome Powell expressed cautious optimism, “We’re going to be cautious about declaring victory and sending signals that we think the game is won, because we’ve got a long way to go.”
The Fed’s hawkish stance to curb inflation is likely to continue throughout 2023, which could keep the stock market under some pressure.
Fundamentally, Exchange-Traded Funds (ETFs) cover a basket of securities, thereby mitigating risk while enjoying broad upside opportunities. As macroeconomic uncertainties remain, investors could consider buying quality ETFs, Vanguard Short-Term Corporate Bond Index Fund (VCSH), JPMorgan Ultra-Short Income ETF (JPST), and SPDR S&P MIDCAP 400 ETF Trust (MDY).
Vanguard Short-Term Corporate Bond Index Fund (VCSH)
VCSH is a fixed-income ETF launched and managed by The Vanguard Group, Inc. It offers exposure to investment-grade corporate bonds that fall towards the short end of the maturity spectrum, thereby delivering a moderate amount of credit risk but limiting exposure to rising interest rates.
The fund’s top holdings include U.S. Dollar with a 0.32% weight, Charter Communications Operating Capital Corp. 4.908% 23-JUL-2025 with an 0.23% weight, and Boeing Company 2.196% 04-FEB-2026 with a 0.23% weight. VCSH has $41.14 billion in AUM and 2360 total holdings. Its expense ratio of 0.04% compares to the category average of 0.19%.
It pays $1.59 annually as dividends, translating to a yield of 2.09% at the current price. VCSH has a four-year average dividend yield of 2.32%. It saw a net inflow of $2.18 billion over the past year.
VCSH has gained 2.4% over the past three months to close the last trading session at $75.84. The fund’s NAV is $75.83 as of February 9, 2023. It has a five-year beta of 0.56.
VCSH’s POWR Ratings reflect its promising prospects. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Trade and Buy & Hold and a B for Peer. VCSH tops the list of 94 funds in the B-rated Corporate Bond ETFs category. Click here to see all ratings for VCSH.
JPMorgan Ultra-Short Income ETF (JPST)
JPST is an actively managed, ultra-short-term, broad-market bond fund that aims to maximize income and preserve capital. The fund makes investments in fixed-rate, variable-rate, and floating-rate debt, including corporate issues, asset-backed securities, and debt pertaining to mortgages, as well as U.S. government and agency debt, including treasury securities.
JPST has $19.21 billion in assets under management. The fund has a total of 473 holdings that include the U.S. Dollar with a 42.76% weighting, United States Treasury Notes 0.375% 15-JUL-2024 with 2.06%, CORPORATE BOND at 1.21%, and Fixed income (unclassified) with 0.94% weighting in the fund.
JPST has an expense ratio of 0.18%, lower than the category average of 0.61%. Its net inflows came in at $3.68 billion over the past six months and $5.92 billion over the past year. It has a NAV of $50.22 as of February 9, 2023.
The ETF pays an annual dividend of $1.96, which yields 3.90% on the current price. Its dividend payouts have increased at a CAGR of 32.6% over the past five years. The fund has a four-year average yield of 1.80%.
Over the past three months, JPST has gained marginally to close the last trading session at $50.23. Also, it has a five-year beta of 0.08.
JPST’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating which equates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold. It is ranked #3 of 33 ETFs in the A-rated Ultra-Short Term Bonds group. Click here to access JPST’s rating for Peer.
SPDR S&P MIDCAP 400 ETF Trust (MDY)
MDY aims to provide before-expenses investment results that correspond with the price and yield performance of the growth and value stocks of mid-cap companies. The fund follows a replication strategy and offers exposure to mid-cap U.S. stocks.
As of February 9, MDY has $20.03 billion AUM and a NAV of $480.12. Its expense ratio of 0.23% compares to the category average of 0.34%. The fund’s top holdings include Fair Isaac Corporation (FICO) with a 0.75% weight, Reliance Steel & Aluminum Co. (RS) with a 0.60% weight, First Horizon Corporation (FHN) with a 0.59% weight, and Carlisle Companies Incorporated (CSL) with a 0.58% weight.
MDY’s annual dividend of $6.05 yields 1.26% on prevailing prices. Its dividend payouts have increased at a 6.2% CAGR over the past three years and an 8.1% CAGR over the past five years. The fund has a four-year average yield of 1.23%.
Over the past six months, the fund’s net inflow came in at $690.46 million. MDY has gained 10.6% over the past three months to close its last trading session at $480.20. It has a five-year beta of 1.11.
MDY’s POWR Ratings are consistent with its promising outlook. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Trade and Buy & Hold and a B for Peer. In the 48-fund B-rated Mid Cap Blend ETFs group, it is ranked #2. Click here to see all POWR Ratings for MDY.
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VCSH shares were trading at $75.76 per share on Friday afternoon, down $0.08 (-0.11%). Year-to-date, VCSH has gained 0.99%, versus a 6.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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