As fears of an imminent stock market crash mount, investors are flocking to ultra-short bond funds, which recorded inflows of $12.8 billion in July. Long-term bonds are underperforming: the iShares 20+ Year Treasury Bond ETF (TLT) has delivered a negative 6.7% average annual return over five years, while the IEF is down 1% annually. Ultra-short funds offer 75 to 110 basis points more yield than money market funds with limited downside risk. Some advisors like Brookwood Investment Group have raised cash allocations from 2% to 5% of portfolios, citing unjustified duration risk in the current environment.
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