US Treasury 2 Year Note ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy earns it an Above Average Process Pillar rating. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization is industry standard, albeit with some strong attributes like high portfolio manager retention and overall low fees. This earns the firm an Average Parent Pillar rating.

Analyst Rating

US Treasury 2 Year Note ETF earns an Above Average Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. The main driver of the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The firm's five-year retention rate of 100% also bolsters the rating. Lastly, the process is limited by the experience of the management team, which averages seven years at this fund.

The investment strategy as stated in the fund's prospectus is: 

The investment seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of the ICE BofA Current 2-Year US Treasury Index.  Under normal market conditions and the Adviser seeks to achieve the investment objective by investing at least 80% of net assets (plus any borrowings for investment purposes) in the component securities of the index. The index is a one-security index comprised of the most recently issued 2-year US Treasury note.  

 This strategy has a 4.4% 12-month yield, higher than its average peer's 3.7%. Plus, its 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return) sits at 4.5%. Higher yields tend to indicate higher credit risk.

Above Average

Process

North Slope’s team receives An Average People Pillar rating. The main contributor to the rating is the firm's five-year retention rate of 100%. The portfolio managers' outperformance at the funds they run, as measured by their combined three-year manager excess returns, also supports the rating. Lastly, the rating is limited by the experience of the management team, which averages seven years at this fund.

Average

People

Even though North Slope only has a one-year track record, it has shown to be an industry-standard steward, warranting an Average Parent Pillar rating. North Slope currently runs 10 vehicles, with a total of $4.31 billion under management and a roster of three portfolio managers.   

 A pocket of strength is the firm’s economical fees on its open-end and exchange-traded funds, demonstrating a firmwide commitment to minimizing costs and maximizing investors’ returns. The average net expense ratio of its funds is within the cheapest quintile of firms.  

 To retain an Average rating, North Slope needs to maintain a consistent track record of positive investor experience.

Parent

US Treasury 2 Year Note ETF

UTWO is a passively managed, single-bond fund that invests in the most recently issued, on-the-run, 2-year US Treasury note. The fund is designed for those specifically required to track the 2-year tenor on the yield curve.

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After raising it to the level of 5.50%, the Federal Reserve is expected to slash interest rates at some points this year.

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UTWO did what I aimed for when I made it a strong buy last October; it produced an annualized total return of over 8% with extremely low risk. But there are other market areas more worthy of my attention, prompting me to lower UTWO to a hold. The 10-2 yield curve spread is narrowing, and if it un-inverts, the recession chatter will get very loud, very soon.

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UTWO is a fixed-income ETF that invests in 2-year Treasury bonds and cash. The market's expectation of rate cuts is undermining the effectiveness of the Federal Reserve's policy and may lead to longer high rates or even higher rates. This structural and reflexive fact has us eschewing fixed income, especially when the jubilance around a loosening job market may have been a mistake to begin with.

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I added UTWO to one of my portfolios recently. This fairly new ETF owns the current 2 year US Treasury note. That's it. The 2-year US Treasury yield is at a compelling level, for many reasons. I like the combination of yield and perhaps rare price appreciation from this lower-volatility investment. I also explain how I use it as part of a 2-step portfolio.

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The US Treasury 2 Year Note ETF is a new exchange traded fund that purchases the current 'on-the-run' 2-year Treasury and sells it a month later to roll into the new one. It offers a constant maturity and exposure to a specific point in the yield curve, making it a useful tool for complex trades. UTWO can be used for building a treasury ladder, as a building block for more complex trades, as a yield generating vehicle, and for its simplicity.

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On today's edition of ETF Edge with Bob Pisani, VettaFi financial futurist Dave Nadig and F/M Investment's CIO Alexis Morris discussed the return of bonds. ﻿ The 60/40 portfolio, declared dead in 2022, has roared back with a vengeance in 2023.

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For investors wanting the safety of US government debt, the US Treasury 2 Year Note ETF invests based on the ICE BofA Current 2-Year US Treasury Index. For investors believing rates are near their peak, the US Treasury 10 Year Note ETF invests based on the ICE BofA Current 10-Year US Treasury Index.

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It looks like the bond market is recovering from the Federal Reserve's aggressive moves in 2022, so 2023 may be the year for investors to reposition their fixed income holdings. Fixed coupon securities and longer duration holdings could outperform in 2023.

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Bond trading can be a complicated affair even for the most die-hard quantitative market professionals. However, the introduction of single-bond exchange traded funds (ETFs) could possibly pave the way for more traders to enter the bond market via easier access.

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