Amid Rate Uncertainty, Shorten Duration With This Active ETF

Inflation appears to be stickier than originally anticipated. That said, a heavy dose of uncertainty now exists with interest rate policy, warranting an active management strategy inherent in the Vanguard Short Duration Bond ETF (VSDB).

Recent economic data isn't helping to quash notions that the Federal Reserve is done raising interest rates. The latest jobs report revealed that employers added more jobs in December than economists' original forecasts. As a result, Treasury yields moved higher and could shift the Fed's rate-cutting policy as inflation remains stubborn.

"The report was obviously negative for inflation," said Felipe Villarroel, partner and portfolio manager at TwentyFour Asset Management. "This is definitely not an economy that is decelerating."

One of the default moves during the Fed's rate-hiking cycle, especially in 2022, was short duration bonds. That strategy can still work in the current market environment, allowing fixed income investors to mitigate rate risk should the Fed pivot and also attain yield simultaneously.

Given this, the timing is auspicious for VSDB.