Current Income ETFs: Bond Fund Alternative?

With inflation driving yields to rock bottom, these ETFs may be the alternative to parked cash.

Reviewed by: Dan Mika
Edited by: Dan Mika

This year has been brutal for savers who aren’t interested in playing the U.S. equity market.

The S&P 500 has hit multiple highs on the prospects of economic recovery from the pandemic and the Federal Reserve’s efforts to keep credit liquidity flowing. Because the Fed has moved to keep interest rates low, the inflation-adjusted yield on those government securities has fallen into the negatives.

In the past 12 months, the yield on five-year inflation-protected Treasury bonds has ranged from -1.18% to -1.97%. Put another way: the safest option to park money requires an investor to be willing to lose up to 2% of their investment each year.

Those low rates affect the yield on the products usually meant for cash-parking purposes, like savings accounts, certificates of deposit or money market accounts. The national interest rate average as of July was 0.06% for savings accounts and 0.08% for money market accounts, while short-term CD rates range between 0.03% at one month to 0.14% for a 12-month product. A 12-month Treasury bill yields just 0.07%.

All of those figures are before inflation, which has been hotter in the past few months than the usual 2% benchmark the Fed aims for. Depending on who you ask, that inflation is either a temporary phenomenon from COVID-19 restrictions being lifted, or the direct result of federal spending programs meant to boost recovery from the pandemic.

At the same time, the renewed spread of COVID-19 across the U.S. and the world only adds to the case for a stock market correction after the last several months of euphoria. For risk-off investors, that creates a Catch-22 between losing real purchasing power or stretching risk tolerance.

However, asset managers think they have a solution: a selection of current-income ETFs, including several launched in the past few weeks.


TickerFundExpense RatioAUM1-Month Return1-Year ReturnNet Flows YTD ($M)
MINTPIMCO Enhanced Short Maturity Active ETF0.37%$14.11B0.03%0.65%-199.68
JPSTJPMorgan Ultra-Short Income ETF0.18%$17.55B0.07%0.58%2,021.63
VNLAJanus Henderson Short Duration Income ETF0.26%$2.80B-0.08%0.24%-104.66
GSYInvesco Ultra Short Duration ETF0.22%$2.99B0.03%0.35%-30.19
EERNDriveWealth Power Saver ETF1.49%$253.30K----0.25
FTSMFirst Trust Enhanced Short Maturity ETF0.25%$4.39B0.00%0.33%-725.94
STBLDriveWealth Steady Saver ETF0.66%$498.60K----0.50
ICSHBlackRock Ultra Short-Term Bond ETF0.08%$5.61B0.05%0.42%381.30
VUSBVanguard Ultra-Short Bond ETF0.10%$1.35B0.05%--1,339.21
ULSTSPDR SSgA Ultra Short Term Bond ETF0.20%$405.36M-0.04%0.86%91.03
GSSTGoldman Sachs Access Ultra Short Bond ETF0.16%$313.01M0.02%0.64%105.30
AWTMAware Ultra-Short Duration Enhanced Income ETF0.25%$155.44M0.06%1.60%-68.58


What Are Current Income ETFs?

These ETFs trade a variety of government and corporate debt products that are typically investment grade and mature within 12 months. Several are also categorized as ultra-short ETFs but may not specify themselves as providing current income.

The goal is to provide current income to investors from coupon payments off those bonds, usually in an actively managed system.

The broader economic conditions this year have opened up a gap in the market for savers who want to not lose their money in real terms, and maybe even want to get a bit of yield off their parked dollars.

The BNY Mellon Ultra Short Income ETF (BKUI) launched earlier this week, while the DriveWealth Steady Saver ETF (STBL) and the DriveWealth Power Saver ETF (EERN) debuted late last month. Those funds differ from their older counterparts because they use an algorithmic active management strategy and expand their investable securities to any maturity and credit quality to shoot for a higher yield.

Vanguard also got into the market segment in its Vanguard Ultra-Short Bond ETF (VUSB) in March.

Todd Rosenbluth, director of ETF and mutual fund research at research firm CFRA, said the launches make sense because several asset managers already have an ultra-short or current income strategy in the form of a mutual fund.

Combine that with a broader acceptance of active management in the ETF world, and he believes the incentives are aligned for more launches:

“It seems quite reasonable that we could see firms (even if they primarily issue index-based ETFs) have an ultra-short product where they can either subadvise it or manage it in-house.”

Worthy Part Of A Portfolio?

Maximizing yields off the underperforming fixed income sector sounds great, but there are several pitfalls investors should consider before buying into a current income product. identifies 10 ultra-short funds with at least 12 months of dividend yield history, which combined have an average yield of 67 basis points. That’s well above the yield of other savings vehicles after expenses are added in, but there’s a stark difference in net returns between different ETFs.

For example, the Aware Ultra-Short Duration Enhanced Income ETF (AWTM) has provided yields of 1.12% after its 0.25% expense ratio, while VUSB has only yielded 0.11% in its lifetime after its 0.10% fee, according to Bloomberg data.

A total of just over $2.8 billion has flown into 12 ETFs identified as seeking current income, including funds without dividend histories. But again, that figure belies a story of performance inequality. The JPMorgan Ultra-Short Income ETF (JPST) and VUSB have a combined $3.4 billion in inflows so far this year, but seven other current income funds are basically flat or have outflows bringing the net flow figure down.

Another issue arises when the underlying bond market is thrown into disarray, like it was during the pandemic shutdown-generated market crash last year. Jason Escamilla, CEO of ImpactAdvisor, noted that ultra-short ETFs traded at discounts of as much as 5% off their net asset value during that period.

The majority of these funds have spreads of 1 or 2 basis points today, but the risk of acute market stress can make it harder to sell shares at values close to their buy-in levels.

“If it's parking cash that you want to do, it's less work with mutual funds, unless it's a highly liquid ETF where a market order gets you close enough to NAV,” he said.

Editor's note: a previous version of this article referred to VUSB and AWTM's TTM yields as gross of expenses. The yields are actually net of expenses. regrets the error.

Contact Dan Mika at [email protected], and follow him on Twitter.

Dan Mika is a reporter for He has previously covered business for the Ames Tribune and Cedar Rapids Gazette in Iowa, and BizWest Media in Fort Collins, Colorado. Dan holds a bachelor's degree in journalism from Truman State University.