Investment grade bonds are comparatively less risky than those rated below investment grade, which are commonly known as “junk” bonds. Bonds that are rated ‘AAA’ and ‘AA’ (high credit quality) and ‘A’ and ‘BBB’ (medium credit quality) by bond rating firms, like Standard & Poor’s, are usually regarded investment-grade bonds. Also, bond funds are considered good investment propositions in a low-rate environment.
Meanwhile, investors seeking to derive safe returns by investing in quality securities may consider short-term investment-grade mutual funds.
These mutual funds invest in debt securities with maturity duration below five years. Though short-term bonds are believed to offer less returns than intermediate- and long-term ones, they have higher stability as shorter maturities are expected to reduce credit and interest rate risk.
Below we will share with you three top ranked short-term investment-grade bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
Best Short-Term Investment-Grade Bond Mutual Funds to Buy: T. Rowe Price Ultra Short-Term Bond Fund (TRBUX)
T. Rowe Price Ultra Short-Term Bond Fund (MUTF:TRBUX) maintains a diversified portfolio by investing in bonds and other related securities that are rated investment-grade. TRBUX seeks maximization of income by investing mainly in investment-grade government and corporate securities that have low maturity period. T. Rowe Price Ultra Short-Term Bond has returned 1.8% over the last one-year period.
TRBUX has an expense ratio of 0.35% compared with the category average of 0.52%.
Best Short-Term Investment-Grade Bond Mutual Funds to Buy: SEI Ultra Short Duration Bond Fund (SECPX)
SEI Ultra Short Duration Bond Fund (MUTF:SECPX) invests a large chunk of its assets in dollar-denominated debt securities that are rated investment-grade. Future contracts are used by the fund’s manager for hedging needs. SEI Ultra Short Duration Bond Fhas returned 1.4% over the last one-year period.
As of June 2018, SECPX held 546 issues, with 2.30% of its assets invested in United States Treasury Notes 1.5%.
Best Short-Term Investment-Grade Bond Mutual Funds to Buy: JPMorgan Limited Duration Bond Fund (ONUAX)
JPMorgan Limited Duration Bond Fund (MUTF:ONUAX) seeks maximization of income constant with the low volatility level of principal. The fund invests mostly in asset-backed securities, mortgage-backed securities, adjustable rate mortgages, mortgage-related securities, structured investments and money market instruments. JPMorgan Limited Duration Bond A has returned 1.2% over the last one-year period.
Robert Manning is one of the fund managers of ONUAX since 2013.
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