Weaver points out that long/short credit funds can provide a buffer in a rising rate environment and even generate greater returns based on the level of exposure provided.
“It is widely anticipated that the increased volatility and dispersion will persist this year, and given current credit valuations and the upcoming Fed tightening, fixed-income investors need to take steps to cushion themselves,” Weaver said. “Therefore, we believe it can be very valuable to hold exposure to credit strategies that can invest both long and short.”
Nevertheless, potential bond ETF investors should be aware that these long/short, zero duration type strategies could underperform traditional long positions if yields begin to fall. As yields dip and Treasury prices rise, the short Treasury positions would drag on overall performance.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.