We’re delving into the world of bonds, but this time it’s ‘short duration’ bonds. What are the benefits and how can investors access them?
This article isn’t personal advice. Remember, investments and any income from them can rise and fall in value, so you could get back less than you invest. Yields are variable and past performance isn’t a guide to the future. If you’re not sure if an investment’s right for you, ask for financial advice.
What are ‘short duration’ bonds?
The true definition of ‘duration’ in the world of bonds is technical. From an investor’s perspective, the easiest way to think about it is in terms of the time left on the bond until it matures.
Short duration usually refers to bonds that have less than five years until they mature, but some investors will focus on those with less than three.
The price of these bonds should change less when interest rates change compared to bonds that have longer until they mature. This means the returns from these bonds could be smoother (less volatile) for investors.
It also means that if interest rates (and bond yields) increase, the losses should be less than for bonds with a longer time to maturity. But the opposite is also true, if interest rates fall, the gains will be smaller.
Short duration bonds could be a good option to help diversify an investment portfolio focused on shares. While the long-term returns are expected to be lower than shares, the smoother journey can offer comfort, particularly during periods of market stress. They might also suit a more cautious portfolio helping to shelter capital.
However, while these bonds might fall less than other investments, they can still lose value, and investors could get back less than they invest.
They could also be a good option for an income focused portfolio, because the bonds will pay regular interest payments (known as coupons) and the capital invested is less likely to change a lot over the short-term.
How to invest in ‘short duration’ bonds
You can invest in bonds directly or via a fund.
If investing directly, an option is UK government bonds (gilts). Investors can pick from multiple different maturity dates and interest payments, to find which ones best meet their investment needs.
For those wanting to keep the ups and downs to a minimum, focusing on gilts that mature within the next two to three years could be a good option.
Funds also offer a good way to access short duration bonds. That way investors get access to lots of underlying bonds, reducing the impact of any losses if an individual company or government defaults.
There’s also a manager who handles the day-to-day decision making and finding new bonds to invest in. That said, the income is more variable over time compared with investing in individual bonds.
Below we’ve highlighted a lower and higher risk option to consider.
Investing in these funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest and make sure any new investment forms part of a long-term diversified portfolio.
Remember, all investments can fall as well as rise in value, so you could get back less than you invest. For more details on each fund, its charges, and specific risks, see the links to their factsheets and key investor information.
Please note that all these funds take their charges from capital. This can increase the amount of income paid but reduces the potential for capital growth.
Ninety One Diversified Income
The Ninety One Diversified Income fund aims to provide an income with potential for capital growth, while limiting the ups and downs to less than half of the UK stock market. The fund mainly invests in bonds from around the world but also invests in some company shares too. The amount invested in shares varies over time, but the maximum is 35%.
At the end of February 2026, the fund invested 10.6% in shares and had a duration of 2.3 years. The duration changes over time – the longest has been around four years and the shortest, one year.
The focus on protecting capital and providing an income means duration is usually kept low.
The fund could be a good addition to an income generating portfolio. It could also provide some stability to an investment portfolio focused on growth, or one focused on company shares.
The fund invests in high yield bonds, emerging markets and derivatives, all of which add risk.
Artemis High Income
Artemis High Income mainly invests in bonds and aims to pay a higher income than other bond funds. Around 15% is invested in UK and European shares, which provides diversification but adds risk.
David Ennett and Jack Holmes became the fund’s managers in 2021. They focus on bonds, while Ed Leggett chooses which shares to invest in.
At the end of February, the fund invested 15.7% in shares and had a duration of 3.3 years. The current duration is the lowest since the managers took over, with the highest level being six years.
The focus on high yield bonds tends to limit duration. That’s because they’re issued by higher risk companies and a shorter term to maturity reduces the risk of default.
We think this fund is a great option for income focused portfolios, however it’s a higher-risk approach than other bond funds.