UTWO: Best Suited For Conservative Investors

seekingalpha07-14

designer491 I recently penned an article on the Simplify Short Term Treasury Futures Strategy ETF (TUA), calling the TUA a hedge against an economic downturn with a positive carry. The TUA may be a ...

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The TUA may be a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4703945-utwo-best-suited-for-conservative-investors\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>UTWO: Best Suited For Conservative Investors</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nUTWO: Best Suited For Conservative Investors\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-14 20:49 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4703945-utwo-best-suited-for-conservative-investors><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>designer491 I recently penned an article on the Simplify Short Term Treasury Futures Strategy ETF (TUA), calling the TUA a hedge against an economic downturn with a positive carry. The TUA may be a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4703945-utwo-best-suited-for-conservative-investors\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://seekingalpha.com/article/4703945-utwo-best-suited-for-conservative-investors","article_id":"2451360680","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1436441539/image_1436441539.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2451360680","pubTimestamp":1720961356,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"designer491 I recently penned an article on the Simplify Short Term Treasury Futures Strategy ETF , calling the TUA a hedge against an economic downturn with a positive carry. The TUA may be a good hedge against an economic downturn because the Federal Reserve will likely loosen monetary policy to stimulate the economy, which should lower short-term rates and benefit the TUA. For investors concerned about TUA's relatively higher volatility, can they get the same kind of protection by buying 2-year treasury notes via investments like the US Treasury 2 Year Note ETF ?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","TUA.AU":"TUAS LTD","TBIL.AU":"VANECK 1-3M UST BOND ETF","BK7042":"综合电信业务","TUA":"SIMPLIFY SHORT TERM TREASURY FUTURES STRATEGY ETF","ISBC":"投资者银行","BK4588":"碎股","BK4550":"红杉资本持仓","FDN":"First Trust Dow Jones Internet I","BK4211":"区域性银行","SHY":"债券指数ETF-iShares Barclays 1-3年国债","TBIL":"US Treasury 3 Month Bill ETF","UTWO":"US Treasury 2 Year Note ETF"},"translate_title":"UTWO：最适合保守投资者","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UTWO":1,"ISBC":1,"SHY":1,"TBIL":1,"TBIL.AU":1,"TUA":1,"TUA.AU":1,"US12M.BOND":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US30Y.BOND":0.9,"US2Y.BOND":0.9,"US10Y.BOND":0.9,"FDN":0.9,"US912797GB79.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6},"content_text":"designer491 I recently penned an article on the Simplify Short Term Treasury Futures Strategy ETF (TUA), calling the TUA a hedge against an economic downturn with a positive carry. The TUA may be a good hedge against an economic downturn because the Federal Reserve will likely loosen monetary policy to stimulate the economy, which should lower short-term rates and benefit the TUA. For investors concerned about TUA's relatively higher volatility, can they get the same kind of protection by buying 2-year treasury notes via investments like the US Treasury 2 Year Note ETF (NASDAQ:UTWO)? In my opinion, UTWO's potential benefits from lower short-term interest rates may be too modest to be useful as a hedge. UTWO is more suited for conservative investors who believe short-term interest rates have peaked and are willing to accept modest duration risk for potentially higher total returns compared to treasury bills. Fund Overview The US Treasury 2 Year Note ETF provides investors with exposure to 2-year treasury notes by tracking the ICE BofA Current 2-Year US Treasury Index. The index models the returns of a rolling position in 2-year treasury notes. The UTWO ETF has $405 million in assets and charges a relatively low 0.15% expense ratio (Figure 1). Figure 1 - UTWO overview (ustreasuryetf.com) Fund Holdings UTWO's strategy and holdings are very simple to understand. The UTWO ETF holds an unlevered position in 2-year treasury notes that is rolled monthly (Figure 2). Figure 2 - UTWO portfolio holdings (ustreasuryetfs.com) UTWO Delivers Modest Returns... With such a simple strategy, UTWO's returns are similarly modest. Since inception, the UTWO ETF has delivered 1.9% average annual returns, with 4.1% returns in the past year (Figure 3). Figure 3 - UTWO delivers modest returns (ustreasuryetf.com) ...And Passes Through Distributions In my opinion, the main benefit of the UTWO ETF is it saves investors the hassle of owning 2-year treasuries and having to roll their positions every month to maintain their maturity at 2 years. The UTWO ETF also passes through the interest income earned from the underlying treasury notes to investors through a monthly distribution. UTWO's most recent distribution was $0.18876375 / share, which annualized to a 4.7% yield. 2-Year As A Hedge Against Economic Downturns In prior articles, I have written that betting on lower short-term interest rates like the 2-year treasury yield may be a good hedge against economic downturns. This is because when the economy turns sour, the Federal Reserve has historically lowered its policy rates to stimulate the economy, and lower Fed Funds rates feed through to short-term yields like the 2-year yield (Figure 4). Figure 4 - 2-year yield is closely tied to Fed Funds rates (Author created with data from St. Louis Fed) However, for an unlevered short-duration fund like the UTWO, the positive impacts from lower short-term yields may be modest. For example, a 2-year treasury bond has a duration of ~2 years and will gain approximately 0.47% in value when interest rates decline by 0.25% (Figure 5). Figure 5 - Hypothetical MTM gain of a 2-year bond from a 0.25% decline in interest rates (calculator.net) Look at SHY For Guidance Although the UTWO ETF does not have a long operating history, so we cannot tell how it will behave in an interest rate-cutting cycle, we can look at similar funds for guidance. For example, the iShares 1-3 Year Treasury Bond ETF (SHY) has a similar strategy of rolling short-term treasury notes with a portfolio duration of 1.8 years. From March 2019 to March 2020, when the Federal Reserve cut the Fed Funds rate from 2.25% to zero, the SHY ETF returned 5.9% (Figure 6). Figure 6 - SHY total returns from March 2019 to March 2020 (Seeking Alpha) This can be explained as roughly 4.5% in MTM gains from lower interest rates, and 1.5% return from the average yield. Unless investors have a large position in the UTWO ETF, its modest returns in a potential rate-cutting cycle will unlikely have too much of an impact to offset portfolio losses elsewhere. Twos Vs. Bills, Which One To Pick? However, for investors who believe the current interest rate-hiking cycle is over, the UTWO ETF does have utility. While the UTWO ETF is only yielding 4.7% compared to treasury bill funds like the US Treasury 3 Month Bill ETF (TBIL) which is yielding 5.1%, if we start to factor in the potential mark-to-market (\"MTM\") gains from lower short-term interest rates, the UTWO ETF may have higher total returns going forward. However, on the flip side, if short-term interest rates do not decline, for example, if inflation reaccelerates and investors increase bets on the Fed raising interest rates, then the UTWO ETF could suffer MTM losses. The key consideration is that treasury bills are riskless securities, while 2-year treasury notes have a very modest amount of duration risk. Picking between UTWO and TBIL requires one to have a view on short-term interest rates. If one believes short-term interest rates have peaked and are moderating, then UTWO should outperform TBIL. Conclusion The US Treasury 2 Year Note ETF is a simple ETF giving investors exposure to 2-year treasury notes. Unlike the TUA ETF, I do not believe the UTWO ETF is useful as a portfolio hedge because its gains in an adverse economic scenario may be too modest to offset portfolio losses elsewhere.  In my opinion, the UTWO ETF is best suited for conservative investors who believe short-term interest rates have peaked and are willing to accept very modest duration risk for potentially higher total returns than treasury bills. I rate the UTWO ETF a hold.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2451360680"}