This investor likes the Franklin Bissett Ultra Short Bond Fund

RN Croft Financial Group portfolio manager Richard Orrell says the Franklin Bissett Ultra Short Bond Fund (Franklin Bissett Ultra Short Bond Fund Stock Quote, Chart, News, Analysts, Financials TSX:FHIS) offers investors a relatively safe place to hold cash while maintaining flexibility to take advantage of opportunities in equity markets.

Speaking on BNN Bloomberg’s Market Call on Oct. 16, Orrell said his firm has been adding the fund to client portfolios as an alternative to guaranteed investment certificates (GICs).

The investor said the fund offers a relatively stable net asset value, regular distributions and daily liquidity, allowing investors to access their money without locking it into a fixed term.

“If an opportunity presents itself in the market, I can sell that ETF, know I’m going to have a lot of safety in that ETF, and I could rotate potentially into the equity markets,” Orrell said.

He said the fund has a duration of less than one year, limiting its sensitivity to changes in interest rates.

Orrell compared it to a money market fund, noting its management expense ratio of about 0.17%.

The fund’s indicated yield was just over 3% at the time of the interview.

“You’re getting a decent yield, you’re reaching out a little bit on risk, but you’ve got that liquidity there if you need it any day,” he said.

Orrell said short-term fixed-income ETFs have become useful cash management tools, pointing to alternatives such as CBILL, which invests in Canadian Treasury bills with maturities of zero to three months.

He also suggested investors consider whether to extend bond duration as interest rate expectations change.

Orrell said markets have priced in several potential rate increases, but those expectations may not materialize, creating opportunities in longer-duration fixed income.

He said yields, particularly in the United States, remain attractive compared with much of the period following the global financial crisis.

Orrell believes interest rates have moved beyond the era of exceptionally cheap borrowing without becoming restrictive enough to cause significant economic damage.

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