Three Low-Risk ETFs I Like More than a Certificate of Deposit (CD)

WisdomTree Floating Rate Treasury Fund (

USFR

+0.02%

)

I think USFR is an excellent choice for investors looking to gain exposure to U.S. Treasury floating rate notes (FRNs) at a competitive 0.15% expense ratio.

FRNs are a type of government debt instrument whose yield adjusts in line with short-term interest rates, typically pegged to the 3-month Treasury Bill rate. This feature makes them particularly attractive in an environment of rising interest rates.

Currently, with interest rates being high, USFR offers a compelling yield to maturity of 5.56% as of January 24. This yield, combined with the exceptional credit rating of the U.S. government backing these securities, makes USFR a great choice for those focused on capital preservation.

One of the key advantages of USFR in the current financial climate is its potential to benefit from further increases in interest rates.

Since the yield on floating rate notes adjusts with short-term rates, any additional rate hikes could lead to higher yields for USFR. This characteristic is especially valuable for investors concerned about the impact of rising rates on their fixed-income investments.

In terms of liquidity, USFR stands out with a 30-day median bid-ask spread of just 0.02%. This low spread ensures that trading the ETF doesn't lead to significant transactional losses, a crucial factor for investors who might require quick access to their funds.

iShares 0-3 Month Treasury Bond ETF (

SGOV

)

For investors who prefer a more traditional fixed-income option rather than floating rate notes, SGOV presents an excellent alternative.

This ETF tracks the ICE 0-3 Month US Treasury Securities Index, which means it invests in extremely short-term Treasury securities. This focus results in a very short duration for the ETF, at just 0.1 years, and it offers a yield to maturity of 5.35%.

A standout feature of SGOV is its cost-effectiveness. The ETF has an expense ratio of 0.07%, which is lower than that of USFR. This fee has been further reduced from 0.13% and will remain at this lowered rate until June 30, 2024.

In terms of liquidity, SGOV is highly accessible with a 30-day median bid-ask spread of just 0.01%. This minimal spread is a significant advantage for investors who value the ability to move in and out of positions without incurring substantial transaction costs.

Additionally, SGOV is quite popular among investors, as evidenced by its $17.8 billion in assets under management, indicating a high level of trust and confidence in the ETF.

JPMorgan Ultra-Short Income ETF (

JPST

+0.06%

)

For investors open to active management and willing to take on a slightly higher credit risk in exchange for greater yields, JPST is an excellent option. JPST primarily targets short-term, investment-grade fixed- and floating-rate corporate and structured debt, offering a diverse mix within its portfolio.

The ETF's assets are spread across various types of debt instruments, including asset-backed securities, CDs, commercial paper, and mostly corporate investment grade securities. This mix provides a balanced exposure to different short-term debt markets.

A significant portion of JPST's holdings is in investment-grade securities, with the majority of credit ratings distributed between BBB, A, A-1, and AAA. This distribution reflects a focus on maintaining a quality portfolio while still targeting higher yields than typical short-duration debt.

JPST is also focused on managing duration exposure, limiting it to under one year, which aligns to provide a stable income stream with reduced interest rate risk. The ETF offers a gross yield to maturity of 5.60%, which translates to a net yield of 5.42% after accounting for the expense ratio.

Despite being actively managed, JPST is relatively affordable compared to its peers in the active management space, with an expense ratio of 0.18%. This rate is higher than that of USFR but remains competitive, especially considering the active management aspect.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.