The equities market has surged, but on the fixed-income side, we are seeing an interest rate headwind. Advisors and investors, though, can take a look at alternative exchange traded fund strategies to help hedge against rising rates.
ETF Trends’ Tom Lydon sat down with Joanne M. Hill, Ph.D., Head of Investment Strategy at ProShare Advisors LLC, at the Charles Schwab IMPACT 2013 conference in Washington, D.C. to discuss fixed income exposure and some hedging strategies available to advisors.
“There is so many cross currents now in the fixed-income space,” Hill said. “Many advisors have increased their weighting to fixed income over the last several years to control their exposure to equity risk, and now the corporate sector is quite healthy, so it’s a very good time to be taking credit risk… but we have this tapering looming.”
Consequently, more advisors are trying to find ways to gain fixed-income exposure to the improving economy without the interest rate risk.
For instance, ProShares recently launched the ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG) and the ProShares High Yield Interest Rate Hedged ETF (BATS: HYHG), which are comprised of long positions in USD-denominated corporate bonds issued by U.S. and foreign companies while taking short positions in U.S. Treasury notes. Essentially, the underlying index tries to achieve an overall duration of zero. [New Investment Grade Bond ETF Hedges Against Rising Rates]
Watch the video below to see the full interview with Joanne Hill.
To view past video interviews, visit our video section.