iShares Ultra Short-Term Bond ETF: Why Cash Is Better Than Puts


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The iShares Ultra Short-Term Bond ETF (BATS:ICSH) is a short-term bond vehicle. Given its quality investment profile and its ultra-short duration (more than 30% of the fund has a maturity date of less than 7 days), the vehicle is a suitable cash parking tool for mild recession environment. The stock market in 2022 has been nothing short of staggering given its volatility:

what is the movement

Large Stock Moves (Compound Advisors)

We can see from the chart above, courtesy of Compound Advisors, that 2022 has seen the most downside volatility since 2009. This is far from normal and says a lot about how bad the market is. bearish. Bullish and range bound markets experience low volatility patterns. Bear markets, on the other hand, oscillate endlessly until investors eventually capitulate. Let’s take a look at the last 5 days:

Data by YCharts

What happened after the CPI report was printed is simply stunning. The market opened much lower with retail shorts open. A vicious short cover rally followed which forced sellers back into neutral resulting in an intraday swing of over 4%! Oh, and yes, the CPI print was poor, which means inflation is still raging and rates will have to rise further.

What should a retail investor do in this environment? Even if you knew the CPI print ahead of time, you would have lost money on Thursday! These are not normal times, and short-term trading patterns are driven by algos and day-traders. Buy and Hold investors would do well to stay neutral and follow the trend. The trend is down as the market is still at its lowest. In the meantime, we will have huge volatility with aggressive bearish rallies.

The best solution for buy and hold investors in this environment is to reduce risk as much as possible and make the portfolio neutral by moving their cash into cash-like vehicles such as ICSH. Buying puts has proven to be a very tricky business in 2022:

buy put options

Sell ​​buy (Sentinel)

When volatility is high, options are expensive. Expensive options suffer from severe time decay – that is, if the market does not sell as much as needed when the option expires, investors may lose all premiums purchased. This is exactly the reason for the current volatility – people buy put options and then unwind them en masse during bear market rallies.

We are of the view that a significant amount of capital from highly volatile corners of the capital markets, such as crypto, has now moved into the broader equity markets. The propensity of individual investors to take very short-term positions using leverage is now higher. In our view, this is another factor that has served to increase volatility in 2022 and is the complete opposite of a typical buy-and-hold investor.


The fund only holds Investment Grade bonds:

What are the facts

Ratings (fund fact sheet)

The vehicle is overweight commercial paper:


Top Sectors (Fund Fact Sheet)

More importantly, the maturity profile of the underlying assets is extremely short:

What is that

Maturity Profile (Fund Fact Sheet)

We note that more than 31% of the fund has a maturity of less than 7 days. More importantly, more than 45% of the fund has a duration of less than 30 days. This maturity profile results in an extremely short duration of the fund of only 0.4 years:


Analytics (what are the details)

A very short duration is equivalent to a very low sensitivity to changes in interest rates. As rates rise, the fund should have a very stable net asset value. We can also notice that the very short maturity profile of the underlying collateral resulted in a fairly high 30-day SEC yield at 3.23%, closely following the beginning of the yield curve.

All the ingredients are in place for the fund to meet the expectations of a retail investor: posting a stable net asset value and offering attractive short-term returns commensurate with the lower part of the yield curve.


ICSH is an appropriate portfolio composition tool for the 2022 market. Being neutral via cash like vehicles that are now yielding over 3% is the trade to have. Buying options is a very expensive business given the high implied volatility and aggressive bear market rallies. Buy and hold investors are best served by reducing risk in their portfolios as much as possible and keeping the proceeds in stable net asset value vehicles such as ICSH.


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