Where To Park Your USD Funds For Higher Yields?

Do you hold US Dollars (USD)? The greenback has risen sharply against major currencies like the euro and British pound in the past year.

While the trend may not last for the coming months ahead, you can always consider deploying your USD funds into cash-like ETFs given their stability and superior yields over cash.

Why has the dollar been so strong? Is it sustainable?

The dollar has been strong mainly due to two reasons.

First, the Fed has been raising interest rates more aggressively than other central banks, and markets have priced that in relative to other currencies.

Second, the dollar is traditionally seen as a safe haven asset. Given recession concerns and stock market volatility, investors have been flocking to the greenback – selling off other currencies in the process. This pushes up the value of the dollar while depreciating other currencies.

Research experts predict the dollar to remain strong for longer, albeit strong US performance and the dollar’s safe haven appeal.

Cash-like ETFs for your USD funds

Wondering where to park your USD in the current environment? Cash-like ETFs could be ideal.

These are funds that hold very short-term bonds and US Treasuries. Such ultra-short bonds typically have maturities of one year or less, giving them less exposure to interest rate risk as compared to longer duration funds.

Amid the current market uncertainty, cash-like ETFs can offer stability and higher yields on your USD funds. 

Because the maturities are so short, proceeds from bonds that have matured get reinvested relatively quickly into higher-yielding bonds.

As interest rates reflect an upward-sloping trend, the yields of these ultra-short ETFs will also increase.

ETFs to Consider

Here are a few examples of ultra-short ETFs that you can employ for managing your USD cash positions:

  • iShares Short Treasury Bond ETF (NASDAQ: SHV)
  • SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEARCA: BIL)
  • JPMorgan Ultra-Short Income ETF (NYSEARCA: JPST)

At a Glance

Yield To Maturity5.28%4.94%5.40%
Expense Ratio0.16%0.14%0.18%
Size (AUM)$18.46B$33.6B$22.4B
Duration0.25 years0.12 years0.63 years
Dividend FrequencyMonthlyMonthlyMonthly
*Yield to maturity for SHV, BIL and JPST as of 12 Jan 2024
Size (AUM) for SHV, BIL and JPST as of 12 Jan 2024
Duration for SHV, BIL and JPST as of 11 Jan 2024
Source: Respective fund websites

iShares Short Treasury Bond ETF (NASDAQ: SHV)

This ETF provides exposure to US Treasury bonds that mature in less than one year. It has an average duration of 0.25 years (approximately four months).

SHV has taken in more than $18 billion so far as investors flock to the fund amid volatile markets.

The fund tracks the ICE Short US Treasury Securities Index and carries an expense ratio of 0.16%. Dividends are paid every month. 

SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEARCA: BIL)

BIL tracks the Bloomberg 1-3 Month U.S. Treasury Bill Index and holds zero coupon US Treasury securities that have a remaining maturity of 1-3 months.

Underscoring the popularity of ultra-short ETFs, BIL has attracted more than $33 billion in assets under management.

The ETF has an expense ratio of 0.14% and pays out monthly dividends.

JPMorgan Ultra-Short Income ETF (NYSEARCA: JPST)

JPST invests mainly in investment grade fixed-and floating rate bonds. Like SHV, the portfolio targets a duration of less than one year.

As of 11 September 2023, the duration was 0.63 years (about seven months).

JPST has amassed around $22 billion in fund assets, making it one of the largest active ETFs in the world.

An example of the fund’s active management was when fund managers reported they had “actively reduced [their] allocation to investment-grade corporate credit, CLOs [collateralized loan obligations] and ABS [asset-backed securities] with the view that continued rate volatility would lead to spread volatility.”

The ETF carries an expense ratio of 0.18% and issues monthly dividends.

How to invest in SHV, JPST and BIL

You can invest in these ETFs using a brokerage platform like Syfe. Syfe allows you to start investing from as low as US$1.49 per trade.