As interest rates begin to move from their historical low, income-oriented exchange traded fund investors will have to shift their strategy accommodate the negative effects of rising rates.
“We’re stuck in a low rate environment,” Mitchell Reiner, founding partners of Wela Strategies and Chief Operating Officer for Capital Investment Advisors, said in the interview. “Growing problem of baby boomers retired. No one really attached the idea or changed the idea of managing portfolios. Yes, it’s here. It’s upon us. The first stage of baby boomers is retiring. That’s the challenge in a low or rising rate environment. Where are we going to get yield?”
Reiner explains that he has been using fixed-income ETFs for duration calls. Duration measures a bond fund’s sensitivity to changes in interest rates. As interest rates rise, bond funds with higher durations will experience a greater negative impact.
Additionally, Reiner points out that investors can dial up or down exposure to alternative assets to get a good yield but also be uncorrelated with interest rates.
“We’re riding the coattails of ETFs,” Reiner added. “ETFs are unique tool been created for use to target specific asset classes.”
Watch the video to see the full interview.