TUSB ETF: Safeguarding Income in Rising Rates with a Short-Term Bond Ladder

As central banks globally pivot toward tighter monetary policies, income-focused investors face a critical challenge: preserving yield while shielding portfolios from interest rate volatility. Enter the TD Select U.S. Short Term Corporate Bond Ladder ETF (TUSB.TO), a fund designed to balance these demands through its unique strategy of short-term maturities and a staggered bond ladder. Let's dissect its recent dividend declaration, structural strengths, and suitability for investors navigating uncertain macroeconomic waters.

The Dividend Stability Anchor: A Steady 0.06 CAD Payout

The TUSB ETF has maintained a consistent $0.06 CAD dividend per share since early 2023, yielding 5.09% as of June 2025. This stability contrasts sharply with its earlier history of sharp swings—such as a 77% dividend cut in early 2023—but signals a maturing strategy. While its average dividend growth rate over the past three years dipped to -4.64%, the ETF's recent consistency suggests a recalibration toward reliability.

Investors seeking predictable income should note that the fund's payouts have been unbroken since March 2025, with the next distribution slated for June 6, 2025. The steady yield aligns with its mandate to prioritize capital preservation over aggressive growth, making it a viable alternative to cash or low-yielding money market instruments.

The Short Duration Advantage: Mitigating Rate Risk

The ETF's 1–5 year maturity focus positions its average duration at 2–3 years, far shorter than the 5–7 year durations of intermediate-term bond funds. This structural choice is deliberate: shorter durations reduce sensitivity to rising rates. For context, a bond fund with a 5-year duration would lose roughly 5% in value for every 1% rate hike—a risk TUSB sidesteps.

The bond ladder's staggered maturities ensure that a portion of holdings rolls over every year, allowing reinvestment at higher yields as rates climb. This “reinvestment advantage” is critical in a rising-rate environment, as it prevents lock-in at outdated rates and protects purchasing power.

The Ladder's Dual Role: Income and Liquidity

Beyond duration management, the ladder design ensures predictable cash flows. By spreading maturities across 1–5 years, TUSB avoids the “cliff risk” of a single maturity date, which could force bulk reinvestment during volatile periods. This structure also enhances liquidity: as bonds mature, proceeds are redeployed into new issues, maintaining the portfolio's yield profile.

The ETF's 0.28% management fee further strengthens its appeal. Compared to active bond funds with 0.5%–1% fees, TUSB offers cost-efficient access to a strategy that's both disciplined and dynamic.

Risks and Considerations

While TUSB excels in risk mitigation, it's not without vulnerabilities:
1. Credit Risk: The fund holds non-investment-grade (high-yield) bonds, which could underperform if corporate defaults rise.
2. Yield Volatility: The 5.09% yield is high for a short-duration fund, but it hinges on the ETF's ability to maintain exposure to higher-yielding corporate debt.
3. Currency Exposure: As a Canadian-listed ETF (TUSB.TO), investors face USD/CAD exchange rate fluctuations.

Investment Thesis: A Niche Play for Income Seekers

TUSB is not a “set-it-and-forget-it” core holding but a tactical income tool for three investor types:
1. Income-focused retirees: The stable 5.09% yield offers a premium over government bonds without excessive volatility.
2. Rate-hedging allocators: Its short duration makes it a hedge against bond-heavy portfolios exposed to long-term interest rate risk.
3. Strategic rebalancers: The ladder's reinvestment feature allows gradual capital reallocation as rates normalize.

Actionable advice: Pair TUSB with high-quality short-term government bond ETFs (e.g., BSV.TO) to diversify credit risk, and monitor its top holdings for shifts into riskier sectors. Avoid overconcentration in high-yield exposures unless your portfolio can absorb potential defaults.

Final Take

In an era of uncertain rates and yield-starved markets, the TD Select U.S. Short Term Corporate Bond Ladder ETF delivers a compelling mix of income, liquidity, and risk control. Its dividend stability, coupled with a duration profile tailored to withstand rising rates, positions it as a niche—but valuable—addition to income-driven portfolios. Just remember: while TUSB shields against interest rate swings, its success hinges on corporate creditworthiness—a risk worth monitoring in an era of slowing growth.

As always, consult your financial advisor before making investment decisions.