In light of the growing risk of a rising rates environment, Northern Trust, the money manager behind the FlexShares line of exchange traded funds, plans to launch an international “variable-income” bond ETF on Thursday to help investors hedge against changes in interest rates.
The FlexShares Ready Access Variable Income Fund (NYSEArca: RAVI) will begin trading on Thursday, reports Brendan Conway for Barron’s.
According to the ETF’s prospectus, the ETF’s average portfolio duration will vary based on the company’s forecast for interest rates, but the duration will not exceed one year.
A bond’s duration is the price sensitivity of the security to changes in interest rates – bonds that have longer durations will experiences steeper price drops if interest rates rise. Under a variable income, payments may be changed based on some underlying measure, which in this case is short-term interest rates.
RAVI will hold about 65% of its assets in non-diversified portfolio of fixed-income instruments, such as bonds, debt securities and other instruments issued by the U.S. and non-U.S. public and private sectors, like corporations and banks.