Video: ETF Strategies to Increase Yield and Manage Rate Risk

November 8th at 7:00am by Max Chen

Income generation is a time-honored investment strategy, but with the prospect of rising interest rates, advisors can branch out with alternative bond exchange traded fund options.

ETF Trends’ Tom Lydon sat down with David B. Mazza, Vice President, Head of ETF Investment Strategy at State Street Global Advisors, at the Morningstar ETF Invest Conference in Chicago to discuss ways to increase yields and manage interest rate risk in a fixed-income portfolio.

Yields on benchmark 10-year Treasuries have gained over 100 basis points since spring as traders anticipate tightening in Fed policy. Consequently, more investors are beginning to take a harder look at how rising rates will affect their fixed-income portfolio.

“I think the recent concerns of tapering and not tapering that the Federal Reserve has introduced to the market place has really wakened up advisors to the challenges they have in managing portfolios broadly, particularly in the fixed-income side,” Mazza said.

Investors, though, are loathe to give up their high yields, so advisors will have to take a different approach.

“We know that clients are still demanding yield in their portfolios, but introducing too much duration risk to get there is pretty impactful,” Mazza added. “We really think investors would be well served by having a blank slate in thinking about fixed income and understanding that there are different approach that we can take today.”

For instance, investors can move down the duration ladder with the SPDR Barclays Short Term Corporate Bond ETF (NYSEArca: SCPB) or the SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK). Additionally, there is the SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN), which offers yield and comes with a floating rate component.

Watch the video below to see the full interview with David Mazza.

To view past video interviews, visit our videos section.