This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A Tamer Breed of Ultra-Short Fund

Stocks in this article: JMGSX FCONX

NEW YORK ( TheStreet) -- If you are tired of the puny yields on money-market funds, you might be tempted to shift your cash to an ultra-short bond fund. According to Morningstar, ultra-short funds yield 1.32%. In comparison, most money markets yield less than 0.05%. But ultra-short funds can lose money in downturns, while money markets nearly always hold their value.

Recently fund companies have begun offering an alternative, a new breed of ultra-short funds that yield a bit more than money markets while taking less risk than traditional competitors. The new entrants include JPMorgan Managed Income Fund (JMGSX), which yields 0.48%, and Fidelity Conservative Income Bond (FCONX), which yields 0.83%. Other fledgling funds are Oppenheimer Short Duration (OSDYX) and Putnam Short Duration Income (PSDTX).

Follow TheStreet on Twitter and become a fan on Facebook.

In order to yield more than money markets, ultra-short funds hold securities with longer maturities. Under rules that were imposed in response to the financial crisis, money-market portfolios must have average maturities of less than 60 days. The new ultra-short funds aim to yield a bit more by holding mixes that typically include money-market instruments as well as securities with maturities of up to one or two years. Many traditional ultra-short funds hold bonds with maturities of three years or more.

The longer their maturities, the harder bonds tend to drop in hard times. During the volatile markets of early October, some of the new ultra-short funds suffered small declines in share prices. Shares of JPMorgan Managed Income dipped from $10.00 to $9.98.

Some analysts worry that investors may not understand the risks of the new funds. "When investors reach for yield, they can get whacked," says Peter Crane, president of Crane Data.

The latest ultra-short group resembles earlier waves that appeared when interest rates sagged, says Crane. "We have seen this movie before," he says.

In 2003, the Federal Reserve lowered the federal funds rate to 1%, and the next year money market funds returned a scant 0.80%. To provide better results, companies began introducing ultra-short funds that yielded more than money markets. The new funds worked smoothly -- until some crashed during the financial crisis. During 2008, the average ultra-short fund lost 7.9%. Some funds declined more than 20%. The problem was that some of the ultra-short funds held toxic mortgage securities.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs