Additionally, some investors have steered toward floating rate bonds that periodically adjust interest rates.
For example, the iShares Floating Rate Note ETF (NYSEArca: FLOT) provides exposure to investment grade bonds with coupon payments that change based on prevailing short-term interest rates. Consequently, the ETF has an effective duration of about 0.15 years. Sector allocations include financial institutions 56.9%, industrial 18.9%, agencies 9.0%, financial 5.8% and supranational 4.4%. FLOT comes with a 0.20% expense ratio and a 0.41% 30-day SEC yield.
The PowerShares Senior Loan Portfolio (NYSEArca: BKLN) tracks senior loans. The asset is lower on a company’s risk structure and are typically rated as speculative grade debt. Additionally, the senior loans come with a floating rate component. Investors have sought out senior loans as a way to benefit from high yields while hedging against rising rates. The fund’s average floating rate component is reset every 48.89 days. BKLN has a 0.66% expense ratio and a 3.90% 30-day SEC yield.
For more information on bonds, visit our bond ETFs category.
Max Chen contributed to this article.