Markets plummeted Thursday as continuously changing U.S. trade policies heighten investor uncertainty across equities and fixed income. Major equity indexes fell, while the dollar weakened further. Bonds sold off globally as investors confronted the prospect of ongoing, policy-driven volatility — and its potential economic implications.
The onset of tariffs on Mexico and Canada sent markets spiraling early in the week. The temporary rollback of tariffs on the automotive industry boosted markets briefly on Wednesday. However, stocks plummeted again on Thursday. The Thursday morning announcement of a month’s pause on tariffs on imports from Mexico that qualify under the existing free trade agreement failed to instill confidence. That announcement was followed by another in the afternoon that the pause would also extend to cover qualified imports from Canada.
Concerns over economic policy uncertainty and its impact to businesses and economic growth as well as the looming jobs report on Friday weighed heavily on markets. The Nasdaq Composite hit correction territory on Thursday, falling 2.6%, while the S&P 500 dropped 1.8%, reported WSJ. Meanwhile, the U.S. dollar logged its weakest four-day stretch since 2022.
Ongoing market volatility, inflation and interest rate risk, and economic uncertainty create challenges for investors this year. Short-duration fixed income funds carry lower risk profiles than their long-duration peers. This could prove advantageous in the current market environment.
Hedging for Uncertainty in Fixed Income
Short-duration strategies offer greater flexibility in a changing macro environment than their peers further along the yield curve. They hold appeal for the diversification benefits they bring to a bond portfolio as well as a differentiated risk profile. Eaton Vance offers several ETFs with an average duration of five years or less.
The +Eaton Vance Short Duration Income ETF+ (EVSD ) seeks to generate above-average returns over three to five years. The fund is actively managed and invests largely in U.S. government securities, corporate bonds, and mortgages as well as asset-backed securities. EVSD also invests up to a quarter of its assets in below-investment-grade, high-yield bonds.
The benchmark for the fund is the Bloomberg 1-5 Year US Credit Index. The strategy seeks to maintain a duration of three years or less. EVSD’s managers consider the yield curve, credit spreads, and real interest rates when investing. They use top-down macro and thematic analysis as well as bottom-up sector analysis for security selection.
Meanwhile, the +Eaton Vance Short Duration Municipal Income ETF+ (EVSM ) offers diversified exposure to the municipal bonds market. By focusing on a duration of less than three years, it offers the potential of a reduced-rate risk profile over longer duration peers. The fund invests at least 80% of its assets in municipal bonds. It also may invest up to 20% of its assets in regular taxable income securities as well as variable and floating rate instruments.
The fund managers consider issuer creditworthiness when investing across municipal bond sectors.
Finally, for investors looking to add ultra-short duration exposure, the +Eaton Vance Ultra-Short Income ETF+ (EVSB ) seeks to maximize income potential while still preserving capital. It invests in investment-grade, short-term fixed, variable, and floating-rate bonds that generate income. The Broad Markets Fixed Income team seeks to keep the fund’s duration to one year or less and selects securities across sectors.
For more news, information, and analysis, visit The ETF Yield Channel.
