With the Fed set on easing back the monetary throttle, investors are beginning to realize the negative effects of a rising rate environment. Nevertheless, there are a number of alternative fixed-income exchange traded fund strategies to help diversify your bond portfolio.

At the ETF Virtual Summit on January 15, the featured panel on “Creative Income Strategies in a Rising Rate Environment,” which include experts from CNBC, First Trust Portfolios, Guggenheim Investments and Peritus Asset Management, will focus on alternative fixed-income strategies that help advisors navigate shifting rates.

For example, over the past year, investors have shifted into senior floating rate bank loans as a way to hedge against rate risk. The PowerShares Senior Loan Portfolio (NYSEArca: BKLN) saw almost $5 billion in new asset inflows over 2013. Senior loan ETFs include a floating rate component, which have extremely short “reset periods,” making senior loans a popular instrument when interest rates are expected to rise. Investors can also choose from actively managed options like the First Trust Senior Loan Fund (NasdaqGM: FTSL) or the SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN). [Bank Loan ETFs Continue to Thrive]

The short-duration theme has also been popular outside of senior loans. Investors can shift down bond ETF duration exposure as a way to limit the negative effects of rising rates – duration is a measure of a bond fund’s sensitivity to changes in interest rates, and a lower duration typically translates to a smaller hit in the event rates should rise.

Additionally, high-yield corporate bonds have garnered greater interest as investors play the improving economy and utilize the higher yields to help cushion the blow from rising rates – bond prices and yields have an inverse relationship, so rising rates corresponds with lower bond prices.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.