New Tools
As a result of numerous discussions with advisors, WisdomTree created an asset allocation tool to help investors manage risk in their bond portfolios. Using this tool, financial advisors can combine existing positions with rising rate strategies in order to target a specific risk (duration) and return (yield) profile. The tool is available for financial professionals only and can be accessed at wisdomtree.com.
As we have mentioned previously, rising rate strategies can help investors further refine their interest rate risk profile while maintaining their current balance of credit risk.
While interest rate-hedged strategies have yet to have their “hedge the euro” moment, we believe the case for prudent risk management continues to build. In our view, it is highly likely that interest rates will continue to rise in 2015 due to a shift in Fed policy. As a result, investors should consider hedging interest rate risk via rising rate strategies.
1Source: Bloomberg, as of 3/17/15.
2Source: Bloomberg, 1/22/15–3/17/15.
3Source: Barclays, as of 3/17/15.
4131 bp ÷ 5.5-year duration = 25 bp.
5As proxied by the Barclays Rate Hedged U.S. Aggregate Bond Index, Zero Duration.
6Source: Bloomberg, as of 3/17/15.
7As proxied by the Barclays Rate Hedged U.S. Aggregate Bond Index, -5 Duration.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. The Fund seeks to mitigate interest rate risk by taking short positions in U.S. Treasuries, but there is no guarantee this will be achieved. Derivative investments can be volatile, and these investments may be less liquid than other securities, and more sensitive to the effects of varied economic conditions.