While Federal Reserve is mulling over an interest rate hike, fixed-income investors have access to a number of exchange traded fund options available to create a diversified and flexible portfolio.
On the upcoming webcast, Fixed Income, Portfolio Construction and The Fed, State Street Global Advisors’ David Mazza, Vice President and Head of Research, Bill Ahmuty, V.P. of Fixed Income ETF Capital Markets & Institutional Sales, and Matthew Bartolini, Research Strategist, discuss a range of fixed-income strategies and potential plays through a Fed rate hike decision.
For instance, many have advised investors to go down the yield curve and hold bond funds with a lower duration to diminish rate risk – duration is a measure of a bond fund’s sensitivity to changes in interest rates, so a lower duration corresponds with a lower sensitivity to higher rates.
A re-weighted aggregate bond portfolio with a shorter duration to limit interest rate risk would include government debt exposure, such as the SPDR Barclays Short Term Treasury ETF (NYSEArca: SST) and SPDR Barclays Intermediate Term Treasury ETF (NYSEArca: ITE), and corporate bond exposure, including the SPDR Barclays Short Term Corporate Bond ETF (NYSEArca: SCPB) and SPDR Barclays Intermediate Term Corporate Bond ETF (NYSEArca: ITR), along with securitized debt through SPDR Barclays Mortgage Backed Bond ETF (NYSEArca: MBG).
SST has a 2.65 year duration and a 0.84% 30-day SEC yield. ITE has a 3.81 year duration and a 1.13% 30-day SEC yield. SCPB has a 1.95 year duration and a 1.69% 30-day SEC yield. ITR has a 4.38 year duration and a 2.72% 30-day SEC yield. Lastly, MBG has a 4.57 year duration and a 2.53% 30-day SEC yield.
Additionally, investors can expand on the aggregate bond portfolio with below investment-grade debt and floating rate exposure to potentially increase yield while lowering the portfolio’s overall duration.
For example, the SPDR Barclays Investment Grade Floating Rate ETF (NYSEArca: FLRN) tracks investment-grade quality corporate debt that adjusts or floats its interest rate in response to the rest of the market. The SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) also floats its rate but includes speculative-grade debt holdings. The SPDR Barclays Short Term High Yield Bond ETF (NSYEArca: SJNK) tracks junk bonds with a focus on short duration. The SPDR Barclays Short Term Corporate Bond ETF (NYSEArca: SCPB) tracks investment-grade corporate debt with shorter durations.
FLRN has a duration of 0.13 years and a 0.65% 30-day SEC yield. SRLN adjusts its floating rate component every 30 days and has a 4.51% 30-day SEC yield. SJNK has a 2.35 year duration and a 6.48% 30-day SEC yield. Lastly, SCPB has a 5.73 year duration and a 1.69% 30-day SEC yield.
Financial advisors who are interested in learning more about the fixed-income market can register for the Thursday, September 17 webcast here.