ETFs like HYZD will short Treasuries or Treasury futures contracts to hedge against potential losses if interest rates rise. For example, HYZD currently maintains short positions in two- and five-year year Treasury futures traded on the Chicago Board of Trade. [Bond ETFs to Survive Rising Rates With]
No long position accounts for more than 4% of the ETF’s weight. Those positions include high-yield bonds from issuers such as CIT Group (NYSE: CIT), General Motors (NYSE: GM) and Sprint (NYSE: S).
“Although rates in the United States have pulled back to start the year, we believe that they will likely rise as the snow melts, resulting in a potential headwind for traditional fixed income portfolios. In our view, the zero and negative duration strategies offer another tool for investors to better insulate their portfolios against a rising rate environment,” added Harper in a March note.
WisdomTree BofA Merrill Lynch High Yield Bond Zero Duration Fund
ETF Trends editorial team contributed to this post.
