Mutual funds investing in debt securities are among the safest investment options that provide regular income while protecting invested capital. Funds that are part of this category offer more frequent dividends than individual bonds, and they bring greater stability to portfolios with large amounts of equity.
US government bond funds typically invest in Treasury bills, notes and securities issued by government agencies. They are considered the safest in the bond fund category and are suitable for risk-averse investors.
Meanwhile, a short-term government bond fund is a mutual fund limited by its investment objectives and bylaws to invest primarily in short-term obligations of the federal government or its agencies. Depending on the fund’s definition, the short term can be up to five years.
Below, we share with you three short-term government bond mutual funds, viz. Vanguard Short Term Federal Fund VSGBX, GMO US Treasury Fund GUSTX And PGIM Short Term High Yield Income Fund HYSAX. Each has earned a Zacks Mutual Fund #1 Rating (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to view the full list of funds.
Vanguard Short Term Federal Fund It invests the majority of its net assets in short-term bonds backed by the U.S. government and its agencies, the U.S. Government Trust and Loan. VSGBX seeks to maintain a dollar-weighted average maturity of 1 to 4 years.
The Vanguard Short-Term Federal Fund has a five-year annualized return of 0.7%. As of the end of July 2022, VSGBX invested 8.3% of its net assets in US Treasury Note Bonds.
GMO US Treasury Fund It invests most of its net assets in direct U.S. Treasury obligations and collateralized repurchase agreements, U.S. Treasury bills, bonds and notes and other securities issued by the U.S. Treasury, as well as separately traded interest and principal securities and other zero-coupon securities. GUSTX advisors tend to maintain interest rates for a year or less.
The GMO US Treasury Fund has three-year annualized returns of 0.6%. GUSTX has an expense ratio of 0.01% compared to the category average of 0.64%.
PGIM Short Term High Yield Income Fund It seeks current income by investing the majority of its net assets in a diversified portfolio of below-investment-grade, high-yield, fixed-income securities of various maturities. HYSAX also invests in derivatives and other instruments with similar economic characteristics.
PGIM Short Term High Yield Income Fund It has a three-year annualized return of 1.62%. Ryan Kelly has been a HYSAX fund manager since October 2012.
To view the Zack Rank and past performance of all short-term government bond mutual funds, investors can click here to view a full list of short-term government bond mutual funds.
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